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The impact of the Tax Cut and Jobs Act on the spatial distribution of high productivity households and economic welfare

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  • Coen-Pirani, Daniele
  • Sieg, Holger

Abstract

The Tax Cut and Jobs Act of 2017 capped state and local tax deductions. We show that this new cap primarily affects households in the top percentile of the income distribution residing in high-tax, high-cost cities. We develop a new dynamic spatial equilibrium model to evaluate the impact of this policy change on the distribution of economic activity and aggregate welfare. We show that the tax reform is likely to lead to a relocation of older high-productivity households to low-cost cities. If local agglomeration externalities depend on these high-productivity households, the tax reform may substantially lower aggregate income.

Suggested Citation

  • Coen-Pirani, Daniele & Sieg, Holger, 2019. "The impact of the Tax Cut and Jobs Act on the spatial distribution of high productivity households and economic welfare," Journal of Monetary Economics, Elsevier, vol. 105(C), pages 44-71.
    • Handle: RePEc:eee:moneco:v:105:y:2019:i:c:p:44-71
    DOI: 10.1016/j.jmoneco.2019.04.001
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    Cited by:

    1. Holger Sieg & Chamna Yoon & Jipeng Zhang, 2020. "The Impact of Migration Controls on Urban Fiscal Policies and the Intergenerational Transmission of Human Capital in China," NBER Working Papers 27764, National Bureau of Economic Research, Inc.
    2. Holger Sieg & Chamna Yoon & Jipeng Zhang, 2023. "The Impact Of Local Fiscal And Migration Policies On Human Capital Accumulation And Inequality In China," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(1), pages 57-93, February.

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    More about this item

    Keywords

    Tax policy; Dynamic spatial equilibrium; Agglomeration externalities; Local labor markets; Aggregate implications of tax policy;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General

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