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Income taxes and the destination of movers to multistate MSAs

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  • Coomes, Paul A.
  • Hoyt, William H.

Abstract

We examine how differences in state income tax rates, as well as other state and local taxes and public service expenditures, influence the choice of state of residence for households (federal tax filers) moving into multistate metropolitan areas (MSAs) using data from the IRS on the migration of taxpayers. MSAs that are on borders provide a spatial discontinuity--discrete differences in state tax rates within a single labor market. These MSAs allow residents to live in one state and work in another state. We find that differences in state income tax rates have a significant impact on the relative rate of migration to the states within an MSA. However, contrary to what would be expected, this impact is only significant in MSAs in which the filing state is based on employment (states without reciprocity) and not for those states in which the filing state is the state of residence (states with reciprocity). In MSAs where states do not have reciprocity agreements, a difference of ten percent in tax rates leads to a 4.1 percent difference in the relative rate of incoming taxpayers. Analogously, we find that a ten percent difference in state tax rates in these MSAs results in a 3.3 percent difference in the rate of tax base inflow (AGI). Our results suggest that one reason that differences in state income taxes appear to have more impact in multistate MSAs without reciprocity is that only relatively large differences in state income tax rates have any impact on migration and these differences are much more pronounced in MSAs without reciprocity.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 63 (2008)
Issue (Month): 3 (May)
Pages: 920-937

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Handle: RePEc:eee:juecon:v:63:y:2008:i:3:p:920-937

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Web page: http://www.elsevier.com/locate/inca/622905

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  1. Randall G. Holcombe & Donald J. Lacombe, 2004. "The Effect of State Income Taxation on Per Capita Income Growth," Public Finance Review, , , vol. 32(3), pages 292-312, May.
  2. Jon Bakija & Joel Slemrod, 2004. "Do the Rich Flee from High State Taxes? Evidence from Federal Estate Tax Returns," NBER Working Papers 10645, National Bureau of Economic Research, Inc.
  3. Conway, Karen Smith & Houtenville, Andrew J, 1998. " Do the Elderly "Vote with Their Feet"?," Public Choice, Springer, Springer, vol. 97(4), pages 663-85, December.
  4. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
  5. Sandra E. Black, 1997. "Do better schools matter? Parental valuation of elementary education," Research Paper, Federal Reserve Bank of New York 9729, Federal Reserve Bank of New York.
  6. Conway, Karen Smith & Houtenville, Andrew J., 2001. "Elderly Migration and State Fiscal Policy: Evidence from the 1990 Census Migration Flows," National Tax Journal, National Tax Association, National Tax Association, vol. 54(n. 1), pages 103-24, March.
  7. Ravi Kanbur & Michael Keen, 1991. "Jeux Sans Frontieres: Tax Competition and Tax Coordination when Countries Differ in Size," Working Papers, Queen's University, Department of Economics 819, Queen's University, Department of Economics.
  8. Conway, Karen Smith & Rork, Jonathan C., 2006. "State "Death" Taxes and Elderly Migration—The Chicken or the Egg?," National Tax Journal, National Tax Association, National Tax Association, vol. 59(1), pages 97-128, March.
  9. Mark, Stephen T. & McGuire, Therese J. & Papke, Leslie E., 2000. "The Influence of Taxes on Employment and Population Growth: Evidence from the Washington, D.C. Metropolitan Area," National Tax Journal, National Tax Association, National Tax Association, vol. 53(n. 1), pages 105-24, March.
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Cited by:
  1. Tino Sanandaji, 2014. "The international mobility of billionaires," Small Business Economics, Springer, Springer, vol. 42(2), pages 329-338, February.
  2. Laurence Kotlikoff & Bernd Raffelhueschen, 1991. "How Regional Differences in Taxes and Public Goods Distort Life Cycle Location Choices," NBER Working Papers 3598, National Bureau of Economic Research, Inc.
  3. Jonathan C. Rork & Gary A. Wagner, 2009. "Reciprocity and Competition: Is There a Connection?," Working Papers, Institut d'Economia de Barcelona (IEB) 2009/1, Institut d'Economia de Barcelona (IEB).
  4. Young, Cristobal & Varner, Charles, 2011. "Millionaire Migration And State Taxation Of Top Incomes: Evidence From A Natural Experiment," National Tax Journal, National Tax Association, National Tax Association, vol. 64(2), pages 255-83, June.
  5. Ken Sanford & William Hoyt, 2009. "Is the Grass Greener on the Other Side of the River?: The Choice of Where to Work and Where to Live for Movers," Working Papers, University of Kentucky, Institute for Federalism and Intergovernmental Relations 2009-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations.

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