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12:30 - 13:45 2 March 2016

State Taxes and Spatial Misallocation


IFS Basement | Institute for Fiscal Studies (link Map)
7 Ridgmount Street | London | WC1E 7AE | United Kingdom

Open to: Academic | Student
Ticketing: Open

Speaker information

Owen Zidar, Chicago Booth

We study state taxes as a potential source of spatial misallocation in the United States. We build a spatial general-equilibrium framework that incorporates salient features of the U.S. state tax system. We use the observed changes in state tax rates between 1980 and 2010 to estimate key model parameters that determine how workers and firms reallocate in response to changes in state taxes. Our results strongly suggest spatial misallocation from state taxes. Eliminating spatial dispersion in taxes accounting for 4% of GDP while keeping the distribution of government spending constant would increase welfare by 0.2%. The potential losses from greater tax dispersion can be large. Moving from no tax dispersion to twice as much dispersion as what is currently observed would reduce welfare by 0.6%.


Institute for Fiscal Studies
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