Costly Migration and the Incidence of State and Local Taxes
AbstractThis paper incorporates costly migration into the empirical literature on the incidence on wages of states and local taxes. The responsiveness of pre-tax wages to changes in state and local taxes (including income, sales and property taxes) is shown to vary by age and education. Using repeated cross-section and pseudo-panel regressions, the paper shows that the pre-tax wages of highly-educated and experienced workers are relatively unresponsive to tax changes. The wages of young and highly-educated workers – those facing the lowest costs of migration – are quite responsive. Results from migration regressions confirm that low migration cost households respond to state and local tax changes, while higher migration cost households do not. In addition, property taxes do not appear to be influencing shifts in pre-tax wages. Relatively small responses of both high and low-income workers suggest that redistributive effects of regressive or progressive state-level taxes are not undermined by labor supply shifts. In practice, however, states with relatively progressive tax structures also impose relatively high taxes on young and highly-educated workers, whose responsiveness is likely generating considerable deadweight losses and not contributing to redistribution in after-tax wages.
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Bibliographic InfoPaper provided by Political Economy Research Institute, University of Massachusetts at Amherst in its series Working Papers with number wp251.
Date of creation: 2011
Date of revision:
Find related papers by JEL classification:
- H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
- H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
- J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
- R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
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