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Place-Based Redistribution

Author

Listed:
  • Cecile Gaubert
  • Patrick Kline
  • Damian Vergara
  • Danny Yagan

Abstract

We study optimal income taxation in a spatial equilibrium model with heterogeneous locational preferences, labor supply decisions, and competitive housing and labor markets. Expressions characterizing the optimal tax schedule in each community are provided that capture the fiscal externalities associated with migration and the effects of redistribution between households and landlords. Correlation between skill and locational preferences yields optimal transfers to poor areas, while sorting based on comparative advantage can motivate transfers in either direction. A calibration to areas targeted by the US Empowerment Zone program yields sizable optimal spatial transfers that are sensitive to assumed levels of migration responsiveness.

Suggested Citation

  • Cecile Gaubert & Patrick Kline & Damian Vergara & Danny Yagan, 2025. "Place-Based Redistribution," American Economic Review, American Economic Association, vol. 115(10), pages 3415-3450, October.
    • Handle: RePEc:aea:aecrev:v:115:y:2025:i:10:p:3415-50
    DOI: 10.1257/aer.20202067
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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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