Commuting and Taxes: Theory, Empirics and Welfare Implications

Agrawal, David R.; Hoyt, William H.

doi:10.1111/ecoj.12550

Cited by 36 publications

(13 citation statements)

References 51 publications

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“…38 This is consistent principal y/o segundaria) understanding that many high-income individuals have multiple contracts. Agrawal and Hoyt (2018), show that firms might relocate, however, in their model, this does not arise with purely residence-based taxation. Our focus is on individual migration in a residence-based system and not on firms.…”

Section: Occupation and Industrymentioning

confidence: 90%

Relocation of the Rich: Migration in Response to Top Tax Rate Changes from Spanish Reforms

Agrawal¹,

Foremny²

2018

SSRN Journal

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A recent Spanish tax reform granted regions the authority to set income tax rates, resulting in substantial tax differentials. We use individual-level information from Social Security records over a period of one decade. Conditional on moving, taxes have a significant effect on location choice. A one percent increase in the net of tax rate for a region relative to others increases the probability of moving to that region by 1.7 percentage points. Focusing on the stock of top-taxpayers, we estimate an elasticity of the number of top taxpayers with respect to net-of-tax rates of 0.85. Using this elasticity, a theoretical model implies that the mechanical increase in tax revenue due to higher tax rates is larger than the loss in tax revenue from the out-flow of migration. High-income taxpayers may be literally "worth their weight in gold" to the government where they reside.1 As a means of tax avoidance, individuals may move in response to tax differentials resulting from residence based local income taxes. earning 300,000 Euros, this amounts to a tax differential of 10,000 Euros. These disparities in regional top tax rates led the popular press to dub low-tax regions such as Madrid as "tax havens" or one of several "paradises on Earth."Research on migration requires linked data of individuals in the country of origin and destination, which is fairly complicated to obtain. 2 Exploiting sub-national variation is therefore an appealing alternative. However, personal income in most countries is taxed at the federal level and only a few countries tax personal income at the regional or1 The quoted phrase comes from Wildasin (2009), who writes: "at current prices ($900/oz.), an average adult male's weight-equivalent (190 lbs.) of gold is worth around $2.7 million. Under conservative assumptions about life expectancy and discount rate, the present value of taxes paid by very high income taxpayers can easily exceed this amount."2 Kleven et al. (2013) and Akcigit et al. (2016) are notable exceptions. They focus on selected subgroups of the population for which the authors have been able to assemble the information needed without access to individual income data linked across countries. Bakija and Slemrod (2004), Moretti and Wilson (2017) and Young et al. (2016) 4 We make several contributions relative to Young et al. (2016). First, we study migration patterns of the rich (above 90,000 Euros) and not just the very rich (millionaires). We also study migration in a setting where regional taxes are purely residence-based; in the United States, taxes may have a residence and employment-based component. Finally, we show heterogeneous effects by industry and occupation. 2we study migration using a random sample of population level administrative data for a complete panel of all regions in a country; Young et al. (2016) have similar data and a single state analysis includes Young and Varner (2011).5 This administrative data provides us detailed information on industry and occupation that allows us to determine the g...

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Section: Occupation and Industrymentioning

confidence: 90%

Relocation of the Rich: Migration in Response to Top Tax Rate Changes from Spanish Reforms

Agrawal¹,

Foremny²

2018

SSRN Journal

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“…They examine households whose members reside in one state and work in an adjacent state to show that if two bordering states do have a reciprocity agreement for income taxes, then the state with the higher income taxes will have fewer interstate commuters. When adjacent states do not have reciprocity agreements, Agrawal and Hoyt (2018) find, both population and employment rates are affected by tax changes. Their results are robust to using a panel-data technique, meaning the authors are able to find dynamic responses to income taxes when there is a tax discontinuity at the state border.…”

Section: The Tax Competition Literaturementioning

confidence: 96%

Dynamic Sales Tax Competition: Evidence from Panel Data at the Border

Gentry¹,

Greenhalgh-Stanley

Rohlin

et al. 2020

Federal Reserve Bank of Boston Research Department Working Papers

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We examine both vertical and horizontal tax competition over time by studying the strategic response of county sales taxation to state sales taxes and to cross-border neighboring municipalities' combined (state and county) taxes. Using county and state sales tax data from 2003 through 2009, we employ both static and dynamic panel analysis as well as an instrumental variables approach in combination with a border analysis. Our results confirm the presence of tax competition in the cross section, as previous studies have found. Results from the fixedeffects and dynamic panel analysis also indicate the presence of vertical competition, though quite small, as counties are consistently responsive to changes in their own state sales tax level across all models and specifications. However, the panel findings suggest little to no horizontal tax competition. Following Parchet (2019), we address additional concerns about endogeneity by instrumenting the neighboring-county sales tax rate with the state-level sales tax rate of the neighboring state. Results from instrumental variables analysis reinforce the presence of a small vertical tax competition between local and state sales tax policies. Interestingly, our results, like those of Parchet (2019), indicate that cross-border local sales tax rates act as strategic substitutes.

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“…We further describe bunching at the rst EITC kink point, our outcome of interest, and provide a theoretical discussion why one would expect bunching to increase after a raise in the State EITC. (Agrawal and Hoyt, 2016). See Meghir and Phillips (2008) and Saez et al (2010), for surveys, and Dörrenberg et al (2015) for theory and evidence.…”

Section: Institutional Backgroundmentioning

confidence: 99%

Tax Refunds and Income Manipulation Evidence from the EITC

2017

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. AbstractWelfare programs are important for reducing poverty but create incentives for recipients to maximize their income by either reducing labor supply or manipulating taxable income.In this paper, we quantify the extent of such behavioral responses for the Earned Income Tax Credit (EITC) in the US. We exploit that US states can set top-up rates, which means that, at a given point in time, workers with the same income receive dierent tax refunds in dierent states. Using event studies as well as a border pair design, we document that a raise in the state-EITC leads to more bunching of self-employed tax lers at the rst kink point of the tax schedule. While we document a strong relationship up until the Great Recession in 2007, we nd no eect thereafter.

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Commuting and Taxes: Theory, Empirics and Welfare Implications

Cited by 36 publications

References 51 publications

Relocation of the Rich: Migration in Response to Top Tax Rate Changes from Spanish Reforms

Relocation of the Rich: Migration in Response to Top Tax Rate Changes from Spanish Reforms

Dynamic Sales Tax Competition: Evidence from Panel Data at the Border

Tax Refunds and Income Manipulation Evidence from the EITC

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