In this paper we analyze the effect of a reduction in tax subsidies on the inflow of high-skilled immigrants.

After 2019, high-skilled immigrants face a reduction in tax subsidies as their tax exemption period is reduced from eight to five years. Using a difference-in-differences strategy, we find that the inflow of high-skilled immigrants decreases on average by 16 percent. This effect is stronger among high-skilled immigrants who earn substantially more than the salary requirement.  A stylized back-of-the-envelope calculation shows that a reduction in the duration of the tax subsidy from eight to five years decreases government revenue by 9 percent, relative to an 8-year subsidy. However, the results differ per income group. The effect on government revenue is negative for workers who have labor earnings far above the salary requirement whereas for workers around the salary requirement the fiscal revenue is positive. From a policy perspective this implies that an increase of the salary requirement may increase government revenue.