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Title: The Unequal Geographic Burden of Federal Taxes and Its Consequences: A Case for Tax Deductions?
Citation Type: Miscellaneous
Publication Year: 2006
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Abstract: Federal taxes fall more heavily on workers in cities that offer above-average wages: cities with higher productivity, lower quality-of-life, or inefficient housing sectors. Estimated tax differentials across cities in the United States, controlling for worker characteristics, have a standard deviation of 2.7 percent of total income; these represent a horizontal transfer of over $200 billion from workers in high-wage cities to similarly-skilled workers in low-wage cities. Large coastal cities pay the highest taxes, while smaller communities, particularly in the South, pay the lowest. As indicated in the paper, federal taxes induce workers to leave high-wage areas, lowering long-run employment levels by 13 percent and land and housing prices by 21 and 4 percent, and bringing on opposite effects in low-wage areas. This leads to a welfare loss of about 0.23 percent of GDP a year, or $28 billion in 2005. Workers may locate efficiently if taxes are appropriately indexed to local wage-levels; indexing taxes to local costs induces too many workers to live in expensive, high quality-of-life cities. Deductions in the tax code for housing and property taxes index taxes partially to local costs, helping workers locate more efficiently, but creating larger losses by distorting consumption choices. Changes in relative wages and housing prices across cities over the 1980s and 90s are roughly consistent with federal tax changes over these periods.
Url: https://eml.berkeley.edu/~webfac/moretti/e251_f06/Albouy.pdf
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Authors: Albouy, David; Auerbach, Alan; Card, David; Chetty, Raj; Collard-Wexler, Allan; Davidoff, Tom; Dellavigna, Stefano; Duranton, Gilles; Greenstone, Michael; Greulich, Erica; Jones, Chad; Lubotsky, Darren; Moretti, Enrico; Quigley, John; Rehavi, Marit; Saez, Emmanuel
Publisher: University of California
Data Collections: IPUMS USA
Topics: Other
Countries: United States