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Workplace Choice, Commuting Costs, and Wage Taxation in Urban and Adjacent Rural Regions

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  • Batabyal, Amitrajeet
  • Nijkamp, Peter

Abstract

We analyze the impact of wage taxation on the workplace choices of and the commuting costs borne by individuals in an aggregate economy consisting of an urban and an adjacent rural region. This economy is inhabited by a continuum of individuals who are uniformly distributed with a total mass of one. These individuals choose whether to work in the urban or in the rural region. The wage is higher (lower) in the urban (rural) region. Our analysis leads to three findings. First, assuming that individuals work in the region in which their after-tax wage net of commuting costs is the highest, we compute the equilibrium number of workers in each region. Second, supposing that the rural region’s median voter works in the urban region, we determine the Nash equilibrium in taxes and ask whether either of the two regions ought to tax or to subsidize the wage. Finally, assuming that the rural region’s median voter works in the rural region, we solve for the Nash equilibrium in taxes and show that optimality calls for the urban and the rural governments to subsidize the two wages.

Suggested Citation

  • Batabyal, Amitrajeet & Nijkamp, Peter, 2019. "Workplace Choice, Commuting Costs, and Wage Taxation in Urban and Adjacent Rural Regions," MPRA Paper 99056, University Library of Munich, Germany, revised 19 Feb 2020.
  • Handle: RePEc:pra:mprapa:99056
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    Cited by:

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    3. Amitrajeet A. Batabyal & Hamid Beladi, 2021. "Interregional demand for workers and the effects of labour income taxation," Regional Science Policy & Practice, Wiley Blackwell, vol. 13(3), pages 1042-1050, June.
    4. Ye Fan & Ming Fang & Xin Zhang & Yongda Yu, 2023. "Will the economic growth benefit public health? Health vulnerability, urbanization and COVID-19 in the USA," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 70(1), pages 81-99, February.

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    More about this item

    Keywords

    Commuting Cost; Rural Region; Urban Region; Wage Taxation; Workplace Choice;
    All these keywords.

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R49 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Other

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