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How regional differences in taxes and public goods distort life cycle location choices

  • Laurence J. Kotlikoff

    ()

    (Boston University)

  • Bernd Raffelhüeschen

    ()

    (Freiburg University (Germany))

  • Christian D. Hagist

    ()

    (Freiburg University (Germany))

This paper has considered an issue which only a few considered in the literature on harmonization of regional fiscal policies. The lack of attention paid to location distortions may reflect the sense that few individuals actually move to different states or countries because of differences in fiscal policies. This study confirms this view for the U.S.; for the U.S. economy as a whole the distortion of location choice appears to be small. However, for the four percent or so of Americans induced, by regional differences in fiscal policy, to relocate, the location distortion may range from .5 to 1.5 percent of the present value of their lifetime consumption – which is not small. In addition, the results suggest that location distortions rise geometrically with the size of regional fiscal differences.

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Article provided by IEF in its journal Hacienda Pública Española/Revista de Economía Pública.

Volume (Year): 189 (2009)
Issue (Month): 2 (June)
Pages: 47-79

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Handle: RePEc:hpe:journl:y:2009:v:189:i:2:p:47-79
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