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State Taxation of Nonresident Income and the Location of Work

Author

Listed:
  • David R. Agrawal
  • Kenneth Tester

Abstract

Prior studies show that taxes matter for the residential locations of high-income earners. But states raise a significant share of revenue from nonresidents. Using variation in state tax rates, we provide causal evidence on the effect of the net-of-tax rate on the location of labor supply for professional golfers. State taxes induce high-income earners to shift employment to low-tax states without a residence change. The elasticity of working in a state is 0.34 and, consistent with the superstar phenomenon, increases with earnings. Our results suggest a novel margin of mobility responses for top earners: the spatial relocation of labor supply by nonresidents.

Suggested Citation

  • David R. Agrawal & Kenneth Tester, 2024. "State Taxation of Nonresident Income and the Location of Work," American Economic Journal: Economic Policy, American Economic Association, vol. 16(1), pages 447-481, February.
    • Handle: RePEc:aea:aejpol:v:16:y:2024:i:1:p:447-81
    DOI: 10.1257/pol.20210567
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    Citations

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    Cited by:

    1. Agrawal, David R. & Chen, Xinyu, 2026. "State and Local Tax Policy in a Time of Telework," GLO Discussion Paper Series 1708, Global Labor Organization (GLO).
    2. Lisa Marie Timm & Massimo Giuliodori & Paul Muller, 2025. "Tax Incentives for Migrants with Mid-level Earnings: Evidence from the Netherlands," American Economic Journal: Applied Economics, American Economic Association, vol. 17(3), pages 42-79, July.
    3. Changlin Yu & Yanming Li, 2025. "Digitalization of tax collection and enterprises’ social security compliance," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 32(4), pages 1213-1252, August.
    4. Dolls, Mathias & Fuest, Clemens & Krolage, Carla & Neumeier, Florian, 2025. "Who bears the burden of real estate transfer taxes? Evidence from the German housing market," Journal of Urban Economics, Elsevier, vol. 145(C).
    5. Lawrence M. Kessler & Donald Bruce, 2024. "A SALT on real estate? Housing market and migration responses to the limit on the state and local tax deduction," Contemporary Economic Policy, Western Economic Association International, vol. 42(4), pages 683-704, October.
    6. Agrawal, David R. & Brueckner, Jan K., 2025. "Taxes and telework: The impacts of state income taxes in a work-from-home economy," Journal of Urban Economics, Elsevier, vol. 145(C).
    7. David R. Agrawal, 2026. "Lessons on State and Local Income Taxes from the Twenty-first Century and Challenges for the Future," CESifo Working Paper Series 12470, CESifo.
    8. Rose Anne Devlin & Michela Planatscher, 2025. "Charitable activities and ‘wellbeing’ in indigenous communities," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 32(5), pages 1532-1572, October.
    9. Jan K. Brueckner & David R. Agrawal, 2025. "Work-from-Home and Wage Convergence Across Cities: An Exploration," CESifo Working Paper Series 12150, CESifo.
    10. Spencer Bastani, 2025. "The marginal value of public funds: a brief guide and application to tax policy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 32(4), pages 919-956, August.

    More about this item

    JEL classification:

    • 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
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • 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
    • Z22 - Other Special Topics - - Sports Economics - - - Labor Issues

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