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State “Death” Taxes and Elderly Migration – The Chicken or the Egg?

Author

Listed:
  • Jonathan C. Rork
  • Karen Smith Conway

Abstract

Researchers and state policymakers have hypothesized that the elderly may move to another state to avoid paying “death” (i.e., inheritance, estate, gift) taxes. This belief may be responsible for the recent revolution in state “death” tax policy whereby 30 states have eliminated their death taxes in favor of the ‘pick-up’ tax since 1976. Is this hypothesis empirically valid? Past research, while weakly supportive, has important limitations casting doubt on their findings. Foremost, all past studies use cross-sectional data. The validity of this approach is questioned, however, when one observes that states which were historically big net-importers of the elderly were also the first to eliminate their death taxes. This begs the question of causality: does heavy net inmigration lead to reduced “death” taxes or do low death taxes capture some unobserved, longstanding desirability of the state for the elderly? Our analysis addresses this issue by using migration data from four different censuses (1970, 1980, 1990, 2000) combined with information about changes in state ‘death’ tax policy to track how changes in elderly movements are related to changes in death tax policy. A second improvement lies in our measure of state death tax policy. Unlike tax shares and effort indices, which will be nonzero for ‘pick-up’ states when the true net burden to the estate is zero, our measure is the first to properly account for the ‘pick-up’ tax when appropriate. Our final advance borrows from the difference-in-difference approach, using nonelderly age groups as our ‘control’. This advance is important because the elderly tend to move to the same states as the working population; what one really wants to capture are differential effects on elderly migration. The end result of our research will provide a more accurate picture of how elderly migration responds to state fiscal policy, especially state ‘death’ taxes.

Suggested Citation

  • Jonathan C. Rork & Karen Smith Conway, 2004. "State “Death” Taxes and Elderly Migration – The Chicken or the Egg?," Econometric Society 2004 North American Winter Meetings 111, Econometric Society.
  • Handle: RePEc:ecm:nawm04:111
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    Cited by:

    1. Brülhart, Marius & Parchet, Raphaël, 2014. "Alleged tax competition: The mysterious death of bequest taxes in Switzerland," Journal of Public Economics, Elsevier, vol. 111(C), pages 63-78.
    2. Mulholland, Sean E. & Hernandez-Julian, Rey, 2013. "Does Economic Freedom Lead to Selective Migration By Education?," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 43(1).
    3. Hawley, Zackary B. & Rork, Jonathan C., 2013. "The case of state funded higher education scholarship plans and interstate brain drain," Regional Science and Urban Economics, Elsevier, vol. 43(2), pages 242-249.
    4. Brunner Johann K., 2014. "Die Erbschaftsteuer – Bestandteil eines optimalen Steuersystems?," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 15(3), pages 199-218, October.
    5. Mehmet Serkan Tosun & Claudia Williamson & Pavel Yakovlev, 2007. "Population Aging, Elderly Migration and Education Spending: Intergenerational Conflict Revisited," Working Papers 07-003, University of Nevada, Reno, Department of Economics;University of Nevada, Reno , Department of Resource Economics.
    6. Onder, Ali Sina & Schlunk, Herwig, 2015. "State Taxes, Tax Exemptions, and Elderly Migration," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 45(1).
    7. Johnson, Erik & Walsh, Randall, 2013. "The effect of property taxes on vacation home growth rates: Evidence from Michigan," Regional Science and Urban Economics, Elsevier, vol. 43(5), pages 740-750.
    8. Coomes, Paul A. & Hoyt, William H., 2008. "Income taxes and the destination of movers to multistate MSAs," Journal of Urban Economics, Elsevier, vol. 63(3), pages 920-937, May.
    9. John Deskins & Brian Hill, 2010. "State taxes and economic growth revisited: have distortions changed?," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 44(2), pages 331-348, April.
    10. Erik B. Johnson & Randall Walsh, 2009. "The Effect of Property Taxes on Location Decisions:Evidence From the Market for Vacation Homes," NBER Working Papers 14793, National Bureau of Economic Research, Inc.
    11. Winters, John V, 2010. "Human Capital and Population Growth in Non-Metropolitan U.S. Counties: The Importance of College Student Migration," MPRA Paper 25592, University Library of Munich, Germany.
    12. John V. Winters, 2011. "Human Capital and Population Growth in Nonmetropolitan U.S. Counties," Economic Development Quarterly, , vol. 25(4), pages 353-365, November.
    13. Marius Brülhart & Raphaël Parchet, 2010. "Alleged Tax Competition: The Mysterious Death of InheritanceTaxes in Switzerland," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 10.04, Université de Lausanne, Faculté des HEC, DEEP.
    14. Jon Bakija & Joel Slemrod, 2004. "Do the Rich Flee from High State Taxes? Evidence from Federal Estate Tax Returns," Department of Economics Working Papers 2004-12, Department of Economics, Williams College.
    15. John V. Winters, 2011. "Why Are Smart Cities Growing? Who Moves And Who Stays," Journal of Regional Science, Wiley Blackwell, vol. 51(2), pages 253-270, May.

    More about this item

    Keywords

    Elderly Migration; State Fiscal Policy; Tiebout;

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • D7 - Microeconomics - - Analysis of Collective Decision-Making

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