Commuting and Taxes: Theory, Empirics, and Welfare Implications

65 Pages Posted: 21 Dec 2014 Last revised: 6 Feb 2017

David R. Agrawal

University of Kentucky - James W. Martin School of Public Policy and Administration; University of Kentucky - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

William H. Hoyt

University of Kentucky - Gatton College of Business and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2016

Abstract

We examine the effects of differences in income tax rates on commuting times. Our theoretical model introduces a border into a model of an urban area and shows that differences in average tax rates distort commuting patterns, but has different effects depending if taxes are residence or employment based. Empirically, tax differentials have large effects on commuting times for affluent households and mobile households. We demonstrate the assumptions under which commute times are a sufficient statistic to measure the spatial welfare effects of tax policies. The model and empirical design can be used by economists to study other policy differences.

Keywords: Tax Differentials, Transportation, Inter-jurisdictional Competition, Commuting, Social Welfare

JEL Classification: H20, H71, H73, R12, R28, R41

Suggested Citation

Agrawal, David R. and Hoyt, William H., Commuting and Taxes: Theory, Empirics, and Welfare Implications (February 1, 2016). Available at SSRN: https://ssrn.com/abstract=2541092 or http://dx.doi.org/10.2139/ssrn.2541092

David Robert Agrawal (Contact Author)

University of Kentucky - James W. Martin School of Public Policy and Administration ( email )

433 Patterson Office Tower
Lexington, KY 40506-0027
United States
859-257-8608 (Phone)

HOME PAGE: http://www.uky.edu/~drag222/

University of Kentucky - Department of Economics ( email )

Lexington, KY 40506
United States

HOME PAGE: http://www.uky.edu/~drag222/

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.uky.edu/~drag222/

William H. Hoyt

University of Kentucky - Gatton College of Business and Economics ( email )

Dept. of Economics
Lexington, KY 40506
United States
606-257-2518 (Phone)
606-323-1920 (Fax)

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