How taxation affects migration?

This thesis examines the effect of income tax rate on immigration using data of nineteen European countries in the period 2000--2012. By means of Fixed Effect Methods, the hypothesis of a negative impact of income tax rate on immigration is tested. The estimation is performed for all immigrants but also separately for the European Union migrants and the migrants which are not citizens of the European Union. The negative effect of income taxation on immigration, including all the immigrants data, is confirmed. After the split of the data set according to the citizenship, the adverse effect of the income tax only for the European Union citizens is detected. The results indicate the positive effect of income taxation on migration of the citizens from other than the European Union countries. However, the result might be influenced by inclusion of short time period data. Contrary to expectations, the social expenditure impact appears to be still rather negative whereas the living cost effect proves surprisingly to be positive, in spite of the fact that the variable is significant merely in the model including all immigrants. The results demonstrate that rise of unemployment decreases immigrant inflows, while wages growth increases immigrant inflows.