Taxes and Telework: The Impacts of State Income Taxes in a Work-from-Home Economy

David Agrawal and Jan K. Brueckner

No 9975, CESifo Working Paper Series from CESifo

Abstract: This paper studies the interstate effects of decentralized taxation and spending when individuals can work from home (WFH). Because WFH decouples population and employment, the analysis of tax impacts on state populations, employment levels, wages and housing prices is radically different than in the standard model where individuals live and work in the same state. Which state can tax teleworkers—leading to either source or residence taxation—matters for tax impacts under WFH. Our main findings, which pertain to the employment and wage effects of WFH, show that a shift from a non-WFH economy to WFH reduces employment and raises the wage in high-tax states, with larger effects under source taxation. Once WHF is established, an increase in a state’s tax rate either reduces employment further while raising the wage (source taxation) or leaves the labor market unaffected (residence taxation). The analysis also shows that the residence-taxation equilibrium is efficient, while source taxation is inefficient.

Keywords: state income taxes; telework; work-from-home (search for similar items in EconPapers)
JEL-codes: H20 H73 R12 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-acc, nep-pbe, nep-pub and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Taxes and telework: The impacts of state income taxes in a work-from-home economy (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9975

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