2017
DOI: 10.1111/ecoj.12489
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Income Taxes, Sorting and the Costs of Housing: Evidence from Municipal Boundaries in Switzerland*

Abstract: We provide novel evidence on the role of income taxes for housing rents and spatial sorting. Drawing on comprehensive micro‐level data, we estimate the responsiveness of households to tax differentials across municipal boundaries. Correcting for unobservable location characteristics and isolating the residential sorting component, we identify an income tax elasticity of rents of about −0.27 to −0.35. In line with non‐homothetic preferences, we find that the marginal willingness to pay for lower taxes increases… Show more

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Cited by 29 publications
(30 citation statements)
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“…This implies that the observed migration of richer households towards suburban areasand the subsequent low-density developmentcould have occurred, in part, due to a combination of land use policies and fiscal incentives. A study by Basten et al (2017) supports this conclusion as it documents that high-income households systematically sort into low-tax jurisdictions that tend to be low density places, where the provision of local public goods and services is more expensive.…”
Section: The Interaction Between Fiscal and Land Use Instrumentsmentioning
confidence: 89%
“…This implies that the observed migration of richer households towards suburban areasand the subsequent low-density developmentcould have occurred, in part, due to a combination of land use policies and fiscal incentives. A study by Basten et al (2017) supports this conclusion as it documents that high-income households systematically sort into low-tax jurisdictions that tend to be low density places, where the provision of local public goods and services is more expensive.…”
Section: The Interaction Between Fiscal and Land Use Instrumentsmentioning
confidence: 89%
“…More recent work has dealt with these biases by making use of better data and newer econometric methods. Notably, Basten et al (2017) and Morger ( 2017) make use of microdata on apartment rentals in Switzerland with substantial time and geographic variation. Basten et al (2017) sets up a regression discontinuity design, exploiting the fact that income taxes depend discretely on residency, but public service access depends continuously on the distance from the service provided.…”
Section: The Estimation Problemmentioning
confidence: 99%
“…Notably, Basten et al (2017) and Morger ( 2017) make use of microdata on apartment rentals in Switzerland with substantial time and geographic variation. Basten et al (2017) sets up a regression discontinuity design, exploiting the fact that income taxes depend discretely on residency, but public service access depends continuously on the distance from the service provided. Morger (2017) uses a hedonic regression and exploits time and geographic variation to control for unobserved public services.…”
Section: The Estimation Problemmentioning
confidence: 99%
“…In a more recent and econometrically rigorous analysis, Basten, von Ehrlich, and Lassmann (2014) looked at all of Switzerland and employed a boundary-discontinuity design approach that corrects Cityscape for unobservable location characteristics. They estimated the income tax elasticity of rents to be about 0.26 (compared with 0.54 based on a conventional estimating approach).…”
Section: Housing Policies In Switzerlandmentioning
confidence: 99%
“…That is, a tax increase of 10 percent reduces rents by about 2.6 percent. Basten, von Ehrlich, and Lassmann (2014) estimated that about two-thirds of the tax elasticity is the result of direct capitalization effects. About one-third can be traced back to the sorting of high-income households into low-tax municipalities.…”
Section: Housing Policies In Switzerlandmentioning
confidence: 99%