The Unequal Geographic Burden of Federal Taxation

Journal of Political Economy, August 2009, 117(4), 635-667

Abstract:

In the United States, workers in cities offering above-average wages—cities with high productivity, low quality of life, or inefficient housing sectors—pay 27 percent more in federal taxes than otherwise identical workers in cities offering below-average wages. According to simulation results, taxes lower long-run employment levels in high-wage areas by 13 percent and land and housing prices by 21 and 5 percent,causing locational inefficiencies costing 0.23 percent of income, or $28 billion in 2008. Employment is shifted from north to south and from urban to rural areas. Tax deductions index taxes partially to local cost of living, improving locational efficiency.