Commuting and Taxes: Theory, Empirics, and Welfare Implications

67 Pages Posted: 21 Dec 2014 Last revised: 9 Aug 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: July 1, 2017

Abstract

We examine the effect of interstate differences in income taxes 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 the sign of the effect depends on whether taxes are residence-based or employment-based. Empirically, tax differentials have a large effect on commuting times for affluent households and mobile households. We show that commuting times are a sufficient statistic to measure the spatial welfare effects of tax policy. 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 (July 1, 2017). 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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