Is the Grass Greener on the Other Side of the River?: The Choice of Where to Work and Where to Live for Movers
AbstractThis analysis examines 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 statistical areas (MSA) using data from the one in twenty sample of the 2000 Census of Population and Housing microdata. MSAs that are on state borders provide a spatial discontinuity – discrete differences in tax rates within a single labor market. These MSAs allow residents to live in one state and work in another state. After controlling for other factors believed to affect household location, differences in state income tax rates have a statistically significant impact on the probability a household locates in the low tax state within an MSA. Complicating the analysis of location choice is the presence of state reciprocity agreements. These bilateral agreements between state governments allow taxpayers to pay income tax based on place of residence rather than their place of work. The theoretical roles of these agreements are discussed and the impacts of these laws are tested. The results suggest that reciprocity agreements alter the role that taxes play in location.
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Bibliographic InfoPaper provided by University of Kentucky, Institute for Federalism and Intergovernmental Relations in its series Working Papers with number 2009-05.
Length: 25 pages
Date of creation: Jan 2009
Date of revision:
Find related papers by JEL classification:
- H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
- H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
- J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-02-28 (All new papers)
- NEP-GEO-2009-02-28 (Economic Geography)
- NEP-MIG-2009-02-28 (Economics of Human Migration)
- NEP-URE-2009-02-28 (Urban & Real Estate Economics)
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