Workplace Choice, Commuting Costs, and Wage Taxation in Urban and Adjacent Rural Regions

Amitrajeet Batabyal and Peter Nijkamp

MPRA Paper from University Library of Munich, Germany

Abstract: We analyze the impact of wage taxation on the workplace choices of and the commuting costs borne by individuals in an aggregate economy consisting of an urban and an adjacent rural region. This economy is inhabited by a continuum of individuals who are uniformly distributed with a total mass of one. These individuals choose whether to work in the urban or in the rural region. The wage is higher (lower) in the urban (rural) region. Our analysis leads to three findings. First, assuming that individuals work in the region in which their after-tax wage net of commuting costs is the highest, we compute the equilibrium number of workers in each region. Second, supposing that the rural region’s median voter works in the urban region, we determine the Nash equilibrium in taxes and ask whether either of the two regions ought to tax or to subsidize the wage. Finally, assuming that the rural region’s median voter works in the rural region, we solve for the Nash equilibrium in taxes and show that optimality calls for the urban and the rural governments to subsidize the two wages.

Keywords: Commuting Cost; Rural Region; Urban Region; Wage Taxation; Workplace Choice (search for similar items in EconPapers)
JEL-codes: H30 R12 R49 (search for similar items in EconPapers)
Date: 2019-09-06, Revised 2020-03-07
New Economics Papers: this item is included in nep-geo, nep-pbe and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Workplace choice, commuting costs, and wage taxation in urban and adjacent rural regions (2020)
Working Paper: Workplace Choice, Commuting Costs, and Wage Taxation in Urban and Adjacent Rural Regions (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:101171

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