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MSA Location and the Impact of State Taxes on Employment and Population: A Comparison of Border and Interior MSA's

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  • William H. Hoyt

    (Department of Economics, Gatton School of Business and Economics, and Martin School of Public Policy and Administration, University of Kentucky)

  • J. William Harden

    (Department of Accounting, Bryan School of Business and Economics, University of North Carolina at Greensboro)

Abstract

We examine the impact of state taxation on employment by focusing on county employment in metropolitan statistical areas (MSA). However, we make a distinction between the impacts of state taxation on employment in metropolitan areas that are wholly contained within a single state and metropolitan areas that consist of counties in more than a single state. We make this distinction because, as we argue in the paper, the impacts of state taxes on both employment and population may be very different in metropolitan areas that border states and those that do not. We expect there to be differences both because the cost of avoiding state taxes, that is, mobility costs, might be lower along borders and also because along borders employees need not reside in the same state in which they are employed. Thus, while in general we believe that employment should be more responsive to taxes in border MSA's, for some taxes, specifically taxes imposed on households, employment might be less responsive as households rather than firms can move to avoid these taxes. Because both the location of employment and residence are affected, and possibly differentially so, by state taxes, we jointly estimate the impacts that taxation may have on employment and population. Our results indicate that there are differences in the responsiveness of both employment and population to both tax and spending variables between border and interior jurisdictions. We also find that the impact of neighboring state taxes have differential effects on employment and population. That there are significant differences in the response to taxation and different type of taxes in border and interior counties suggests state-level estimates of the impacts of taxation may suffer from significant aggregation bias.

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Bibliographic Info

Paper provided by University of Kentucky, Institute for Federalism and Intergovernmental Relations in its series Working Papers with number 2005-01.

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Length: 36 pages
Date of creation: May 2005
Date of revision:
Handle: RePEc:ifr:wpaper:2005-01

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Citations

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Cited by:
  1. David E.Wildasin, 2010. "State Corporation Income Taxation: An Economic Perspective on Nexus," Working Papers 1011, Oxford University Centre for Business Taxation.
  2. Hikaru Ogawa & David E. Wildasin, 2009. "Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking," American Economic Review, American Economic Association, vol. 99(4), pages 1206-17, September.
  3. Christos Kotsogiannis & Robert Schwager, 2006. "Fiscal Equalization and Yardstick Competition," CESifo Working Paper Series 1865, CESifo Group Munich.
  4. Wildasin, David E., 2007. "Pre–Emption: Federal Statutory Intervention in State Taxation," National Tax Journal, National Tax Association, vol. 60(3), pages 649-62, September.
  5. Buettner, Thiess & Wildasin, David E., 2006. "The dynamics of municipal fiscal adjustment," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1115-1132, August.
  6. Robin Boadway & Jean-Francois Tremblay, 2006. "A Theory of Vertical Fiscal Imbalance," Working Papers 1072, Queen's University, Department of Economics.
  7. David Wildasin, 2009. "State and Local Government Finance in the Current Crisis: Time for Emergency Federal Relief?," Working Papers 2009-07, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  8. Clifford J. Carrubba & Matthew Gabel, 2005. "Do Governments Sway European Court of Justice Decision-making?: Evidence from Government Court Briefs," Working Papers 2005-06, University of Kentucky, Institute for Federalism and Intergovernmental Relations.

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