IDEAS home Printed from https://ideas.repec.org/p/zbw/vfsc15/114560.html
   My bibliography  Save this paper

The Distributional Effect of Commuting Subsidies - Evidence from Geo-Referenced Data and Large-Scale Policy Reform

Author

Listed:
  • Freund, Florian
  • Hawranek, Franziska
  • vom Berge, Philipp
  • Heuermann, Daniel F.

Abstract

Tax legislation in virtually all OECD countries foresees tax breaks for commuters. Such commuting allowances are implemented with the aim to raise matching efficiency in the labor market and / or to promote an equalization of net wages for workers independent of the length of their commute. Despite the fiscal magnitude of these subsidies (e.g. in Germany the sum of foregone tax income from commuting tax breaks amounts to 6 billion Euros annually) little is known about their effects on worker and firm behavior. In this paper we use the unexpected repeal of commuting subsidies in Germany between 2007 and 2009, which has affected different groups of workers to a different extent, as a natural experiment. Drawing on a large data set of geo-referenced employer-employee data and applying a difference-in-difference approach, we estimate the effect of commuting subsidies on wages and employment. Beyond the direct effect of the commuting tax break our results allow to draw inference on three key variables in labor economics: wage elasticity of labor supply, bargaining power of workers, and the wage elasticity of locational choice. We find that workers who lose some of their net wage as a result of the reform experience increases in gross wages of .6 per cent. Adjustments in gross wages differ, however, substantially across industries and across educational status, which can be taken as evidence for differential bargaining power across worker groups.

Suggested Citation

  • Freund, Florian & Hawranek, Franziska & vom Berge, Philipp & Heuermann, Daniel F., 2015. "The Distributional Effect of Commuting Subsidies - Evidence from Geo-Referenced Data and Large-Scale Policy Reform," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 114560, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc15:114560
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/114560/1/VfS_2015_pid_583.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Olof Åslund & John Östh & Yves Zenou, 2010. "How important is access to jobs? Old question--improved answer," Journal of Economic Geography, Oxford University Press, vol. 10(3), pages 389-422, May.
    2. Zenou,Yves, 2009. "Urban Labor Economics," Cambridge Books, Cambridge University Press, number 9780521698221, October.
    3. Gunselmann, Isabelle, 2014. "Programmierbeispiele zur Umrechnung des Brutto- in ein Netto-Tagesentgelt für die administrativen Daten des FDZ," FDZ Methodenreport 201401_de, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    4. Shorrocks, A F, 1980. "The Class of Additively Decomposable Inequality Measures," Econometrica, Econometric Society, vol. 48(3), pages 613-625, April.
    5. repec:eee:pubeco:v:151:y:2017:i:c:p:41-55 is not listed on IDEAS
    6. Manning, Alan, 2003. "The real thin theory: monopsony in modern labour markets," Labour Economics, Elsevier, vol. 10(2), pages 105-131, April.
    7. Shihe Fu & Stephen L. Ross, 2013. "Wage Premia in Employment Clusters: How Important Is Worker Heterogeneity?," Journal of Labor Economics, University of Chicago Press, vol. 31(2), pages 271-304.
    8. Boehm, Michael J., 2013. "Concentration versus re-matching? Evidence about the locational effects of commuting costs," LSE Research Online Documents on Economics 51542, London School of Economics and Political Science, LSE Library.
    9. Helsley, Robert W. & Strange, William C., 1990. "Matching and agglomeration economies in a system of cities," Regional Science and Urban Economics, Elsevier, vol. 20(2), pages 189-212, September.
    10. repec:dgr:uvatin:20070060 is not listed on IDEAS
    11. Peter Ruppert & Elena Stancanelli & Etienne Wasmer, 2009. "Commuting, Wages and Bargaining Power," Annals of Economics and Statistics, GENES, issue 95-96, pages 201-220.
    12. Bastani, Spencer & Selin, Håkan, 2014. "Bunching and non-bunching at kink points of the Swedish tax schedule," Journal of Public Economics, Elsevier, vol. 109(C), pages 36-49.
    13. Emmanuel Saez, 2010. "Do Taxpayers Bunch at Kink Points?," American Economic Journal: Economic Policy, American Economic Association, vol. 2(3), pages 180-212, August.
    14. Anderson, Patricia M. & Meyer, Bruce D., 2000. "The effects of the unemployment insurance payroll tax on wages, employment, claims and denials," Journal of Public Economics, Elsevier, vol. 78(1-2), pages 81-106, October.
    15. Anderson, Patricia M. & Meyer, Bruce D., 1997. "The effects of firm specific taxes and government mandates with an application to the U.S. unemployment insurance program," Journal of Public Economics, Elsevier, vol. 65(2), pages 119-145, August.
    16. Bennmarker, Helge & Mellander, Erik & Öckert, Björn, 2009. "Do regional payroll tax reductions boost employment?," Labour Economics, Elsevier, vol. 16(5), pages 480-489, October.
    17. Jonathan Morduch & Terry Sicular, 2002. "Rethinking Inequality Decomposition, With Evidence from Rural China," Economic Journal, Royal Economic Society, vol. 112(476), pages 93-106, January.
    18. Ross, Stephen & Yinger, John, 1995. "Comparative static analysis of open urban models with a full labor market and suburban employment," Regional Science and Urban Economics, Elsevier, vol. 25(5), pages 575-605, October.
    19. Ross, Stephen L. & Zenou, Yves, 2008. "Are shirking and leisure substitutable? An empirical test of efficiency wages based on urban economic theory," Regional Science and Urban Economics, Elsevier, vol. 38(5), pages 498-517, September.
    20. Monte, Ferdinando & Redding, Stephen J. & Rossi-Hansberg, Esteban, 2015. "Commuting, Migration and Local Employment Elasticities," CEPR Discussion Papers 10933, C.E.P.R. Discussion Papers.
    21. repec:iab:iabfme:201401 is not listed on IDEAS
    22. Ismir Mulalic & Jos N. Van Ommeren & Ninette Pilegaard, 2014. "Wages and Commuting: Quasi‐natural Experiments' Evidence from Firms that Relocate," Economic Journal, Royal Economic Society, vol. 124(579), pages 1086-1105, September.
    23. Borck, Rainald & Wrede, Matthias, 2005. "Political economy of commuting subsidies," Journal of Urban Economics, Elsevier, vol. 57(3), pages 478-499, May.
    24. van Ommeren, Jos N. & Gutiérrez-i-Puigarnau, Eva, 2011. "Are workers with a long commute less productive? An empirical analysis of absenteeism," Regional Science and Urban Economics, Elsevier, vol. 41(1), pages 1-8, January.
    25. Baldry, Jonathan, 1998. "Income Tax Deductions for Work-Related Expenses: The Rationale Examined," Australian Economic Papers, Wiley Blackwell, vol. 37(1), pages 45-57, March.
    26. Martin Biewen & Andos Juhasz, 2012. "Understanding Rising Income Inequality in Germany, 1999/2000–2005/2006," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 58(4), pages 622-647, December.
    27. Paetzold, Jörg & Winner, Hannes, 2016. "Taking the high road? Compliance with commuter tax allowances and the role of evasion spillovers," Journal of Public Economics, Elsevier, vol. 143(C), pages 1-14.
    28. Dauth, Wolfgang & Haller, Peter, 2016. "The valuation of changes in commuting distances: an analysis using georeferenced data," IAB Discussion Paper 201643, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    29. Zenou, Yves, 2006. "Efficiency wages and unemployment in cities: The case of high-relocation costs," Regional Science and Urban Economics, Elsevier, vol. 36(1), pages 49-71, January.
    30. Murphy, Kevin J., 2007. "The impact of unemployment insurance taxes on wages," Labour Economics, Elsevier, vol. 14(3), pages 457-484, June.
    31. Weiss, Martin, 2009. "How do Germans react to the commuting allowance?," arqus Discussion Papers in Quantitative Tax Research 88, arqus - Arbeitskreis Quantitative Steuerlehre.
    32. Zenou, Yves & Smith, Tony E., 1995. "Efficiency wages, involuntary unemployment and urban spatial structure," Regional Science and Urban Economics, Elsevier, vol. 25(4), pages 547-573, August.
    33. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 249-275.
    34. Borck, Rainald & Wrede, Matthias, 2009. "Subsidies for intracity and intercity commuting," Journal of Urban Economics, Elsevier, vol. 66(1), pages 25-32, July.
    35. repec:adr:anecst:y:2009:i:95-96:p:11 is not listed on IDEAS
    36. Wolfram Richter, 2006. "Efficiency effects of tax deductions for work-related expenses," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 13(6), pages 685-699, November.
    37. repec:adr:anecst:y:2009:i:95-96 is not listed on IDEAS
    38. Daniela Hochfellner & Dana Müller & Anja Wurdack, 2012. "Biographical Data of Social Insurance Agencies in Germany – Improving the Content of Administrative Data," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 132(3), pages 443-451.
    39. Bingley, Paul & Lanot, Gauthier, 2002. "The incidence of income tax on wages and labour supply," Journal of Public Economics, Elsevier, vol. 83(2), pages 173-194, February.
    40. Doerrenberg, Philipp & Peichl, Andreas & Siegloch, Sebastian, 2017. "The elasticity of taxable income in the presence of deduction possibilities," Journal of Public Economics, Elsevier, vol. 151(C), pages 41-55.
    41. Eva Gutiérrez‐i‐Puigarnau & Jos N. Van Ommeren, 2011. "Welfare Effects Of Distortionary Fringe Benefits Taxation: The Case Of Employer‐Provided Cars," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(4), pages 1105-1122, November.
    42. repec:wyi:journl:002155 is not listed on IDEAS
    43. Michael J. Boehm, 2013. "Concentration Versus Re-Matching? Evidence About the Locational Effects of Commuting Costs," CEP Discussion Papers dp1207, Centre for Economic Performance, LSE.
    44. Jonathan Baldry, 1998. "Abolishing Income Tax Deductions for Work-Related Expenses," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 5(1), pages 49-60.
    45. Wolfram F. Richter & Peter Bareis & Matthias Wrede & Martin Gasche, 2004. "Ist die Abschaffung der Entfernungspauschale ökonomisch sinnvoll?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 57(05), pages 5-19, March.
    46. repec:spo:wpecon:info:hdl:2441/10031 is not listed on IDEAS
    47. Daniel D. Schnitzlein, 2011. "Umfang und Folgen der Nichtinanspruchnahme von Urlaub in Deutschland," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 78(51/52), pages 14-20.
    48. Florian Lehmer & Joachim Möller, 2010. "Interrelations between the urban wage premium and firm-size wage differentials: a microdata cohort analysis for Germany," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 45(1), pages 31-53, August.
    49. Donges, Juergen B. & Eekhoff, Johann & Franz, Wolfgang & Fuest, Clemens & Möschel, Wernhard & Neumann, Manfred J. M., 2008. "Gegen die Neubelebung der Entfernungspauschale," Argumente zur Marktwirtschaft und Politik 102, Stiftung Marktwirtschaft / The Market Economy Foundation, Berlin.
    50. Matthias Wrede, 2003. "Tax Deductibility of Commuting Expenses and Residential Land Use with more than one Center," CESifo Working Paper Series 972, CESifo Group Munich.
    51. Scholz, Theresa & Rauscher, Cerstin & Reiher, Jörg & Bachteler, Tobias, 2012. "Geocoding of German administrative data : the case of the Institute for Employment Research," FDZ Methodenreport 201209_en, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:oup:cesifo:v:64:y:2018:i:2:p:292-326. is not listed on IDEAS
    2. Dauth, Wolfgang & Haller, Peter, 2016. "The valuation of changes in commuting distances: an analysis using georeferenced data," IAB Discussion Paper 201643, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

    More about this item

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:vfsc15:114560. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics). General contact details of provider: http://edirc.repec.org/data/vfsocea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.