How Regional Differences in Taxes and Public Goods Distort Life Cycle Location Choices
AbstractLocational choice is one of the fundamental exercises of consumer sovereignty. When regions (or localities within regions) specify different tax rates or supply different amounts of public goods, they distort individuals' location choices. This paper models and measures for the U.S. and New England the location distortion arising from inter regional differences in taxation and supplies of public goods. In our overlapping generations model agents, at each point in their lifespan, choose where to locate taking into account their locational preferences, each region's wage, consumption, and personal capital income taxes, and each region's supply of public goods. The findings suggest that regional fiscal differences play an important role in the location choices of three to four percent of Americans. For these Americans the distortion of location choice is equivalent to roughly a half of a percent of their lifetime consumption. Across all Americans, however, the location distortion induced by U.S. regional fiscal differences is quite small, simply because the differences in tax rates and per capita levels of public goods expenditures across regions are not sufficiently large to induce most Americans to change location. Our analysis indicates, however, that location distortions are an increasing function of regional differences in tax rates and levels of public goods expenditure. Indeed, a doubling of the scale of public finances across all U.S. states would lead to roughly a quadrupling of the location distortion.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3598.
Date of creation: Jan 1991
Date of revision:
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- Laurence J. Kotlikoff & Bernd Raffelhüeschen & Christian D. Hagist, 2009. "How regional differences in taxes and public goods distort life cycle location choices," Hacienda Pública Española, IEF, vol. 189(2), pages 47-79, June.
- 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
- H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Marie-Estelle Binet, 2008. "Optimal local taxation and French municipal tax distortions," Applied Economics, Taylor and Francis Journals, vol. 40(3), pages 327-332.
- Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
- Thomas Liebig & Alfonso Sousa-Poza, 2006. "The influence of taxes on migration: evidence from Switzerland," Cambridge Journal of Economics, Oxford University Press, vol. 30(2), pages 235-252, March.
- Wilson, John Douglas, 1987. "Trade, Capital Mobility, and Tax Competition," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 835-56, August.
- Robert E. Hall, 1988.
"Intertemporal Substitution in Consumption,"
NBER Working Papers
0720, National Bureau of Economic Research, Inc.
- E.K. Berndt & B.H. Hall & R.E. Hall, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 103-116 National Bureau of Economic Research, Inc.
- Kathleen Day & Stanley Winer, 2006.
"Policy-induced internal migration: An empirical investigation of the Canadian case,"
International Tax and Public Finance,
Springer, vol. 13(5), pages 535-564, September.
- Kathleen M. Day & Stanley L. Winer, 2005. "Policy-induced Internal Migration: An Empirical Investigation of the Canadian Case," CESifo Working Paper Series 1605, CESifo Group Munich.
- Pakes, Ariel S, 1986. "Patents as Options: Some Estimates of the Value of Holding European Patent Stocks," Econometrica, Econometric Society, vol. 54(4), pages 755-84, July.
- Lars P. Feld & Gebhard Kirchgässner, 2001.
"The Impact of Corporate and Personal Income Taxes on the Location of Firms and on Employment: Some Panel Evidence for the Swiss Cantons,"
CESifo Working Paper Series
455, CESifo Group Munich.
- Feld, Lars P. & Kirchgassner, Gebhard, 2003. "The impact of corporate and personal income taxes on the location of firms and on employment: some panel evidence for the Swiss cantons," Journal of Public Economics, Elsevier, vol. 87(1), pages 129-155, January.
- Wildasin, David E., 1988.
"Nash equilibria in models of fiscal competition,"
Journal of Public Economics,
Elsevier, vol. 35(2), pages 229-240, March.
- Bradford, David F., 1978. "Factor prices may be constant but factor returns are not," Economics Letters, Elsevier, vol. 1(3), pages 199-203.
- Joseph E. Stiglitz, 1984. "The Theory of Local Public Goods Twenty-Five Years After Tiebout: A Perspective," NBER Working Papers 0954, National Bureau of Economic Research, Inc.
- Mansoorian, Arman & Myers, Gordon M., 1993. "Attachment to home and efficient purchases of population in a fiscal externality economy," Journal of Public Economics, Elsevier, vol. 52(1), pages 117-132, August.
- Coomes, Paul A. & Hoyt, William H., 2008. "Income taxes and the destination of movers to multistate MSAs," Journal of Urban Economics, Elsevier, vol. 63(3), pages 920-937, May.
- Roger H. Gordon, 1982.
"An Optimal Taxation Approach to Fiscal Federalism,"
NBER Working Papers
1004, National Bureau of Economic Research, Inc.
- Brueckner, Jan K., 2006.
"Fiscal federalism and economic growth,"
Journal of Public Economics,
Elsevier, vol. 90(10-11), pages 2107-2120, November.
- Ariel Pakes, 1986. "Patents as Options: Some Estimates of the Value of Holding European Patent Stocks," NBER Working Papers 1340, National Bureau of Economic Research, Inc.
- Martin Feldstein & Marian Vaillant, 1994.
"Can State Taxes Redistribute Income?,"
NBER Working Papers
4785, National Bureau of Economic Research, Inc.
- Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
- Diamond, P. A. & McFadden, D. L., 1974. "Some uses of the expenditure function in public finance," Journal of Public Economics, Elsevier, vol. 3(1), pages 3-21, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.