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Is the Grass Greener on the Other Side of the River?: The Choice of Where to Work and Where to Live for Movers

Ken Sanford () and William Hoyt ()
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Ken Sanford: Graduate Student, Department of Economics, Gatton College of Business and Economics, University of Kentucky

No 2009-05, Working Papers from University of Kentucky, Institute for Federalism and Intergovernmental Relations

Abstract: This analysis examines how differences in state income tax rates, as well as other state and local taxes and public service expenditures, influence the choice of state of residence for households (federal tax filers) moving into multistate metropolitan statistical areas (MSA) using data from the one in twenty sample of the 2000 Census of Population and Housing microdata. MSAs that are on state borders provide a spatial discontinuity – discrete differences in tax rates within a single labor market. These MSAs allow residents to live in one state and work in another state. After controlling for other factors believed to affect household location, differences in state income tax rates have a statistically significant impact on the probability a household locates in the low tax state within an MSA. Complicating the analysis of location choice is the presence of state reciprocity agreements. These bilateral agreements between state governments allow taxpayers to pay income tax based on place of residence rather than their place of work. The theoretical roles of these agreements are discussed and the impacts of these laws are tested. The results suggest that reciprocity agreements alter the role that taxes play in location.

JEL-codes: H73 H71 J61 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2009-01
New Economics Papers: this item is included in nep-geo, nep-mig and nep-ure
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