Commuting and Taxes: Theory, Empirics, and Welfare Implications
67 Pages Posted: 21 Dec 2014 Last revised: 9 Aug 2017
Date Written: July 1, 2017
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
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