Income Taxes, Sorting, and the Costs of Housing

Christoph Basten, Maximilian von Ehrlich and Andrea Lassmann

No 14-362, KOF Working papers from KOF Swiss Economic Institute, ETH Zurich

Abstract: This paper provides novel evidence on the role of income taxes for residential rents and spatial sorting. Drawing on comprehensive apartment-level data, we identify the effects of tax differentials across municipal boundaries in Switzerland. The boundary discontinuity design (BDD) corrects for unobservable location characteristics such as environmental amenities or the access to public goods and thereby reduces the estimated response of housing prices by one half compared to conventional estimates: we identify an income tax elasticity of rents of about 0.26. We complement this approach with census data on local sociodemographic characteristics and show that about one third of this effect can be traced back to a sorting of high-income households into low-tax municipalities. These findings are robust to a matching approach (MBDD) which compares identical residences on opposite sides of the boundary and a number of further sensitivity checks.

Keywords: Local taxation; Income taxation; Housing prices; Income sorting; Boundary discontinuity design; Spatial dierencing (search for similar items in EconPapers)
Pages: 49 pages
Date: 2014-07
New Economics Papers: this item is included in nep-geo, nep-pbe, nep-pub and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:kof:wpskof:14-362

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