The Unequal Geographic Burden of Federal Taxation.pdfVIP

The Unequal Geographic Burden of Federal Taxation David Albouy University of Michigan and National Bureau of Economic Research 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 simula- tion 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. I. Introduction Wage and cost-of-living levels vary considerably across cities in the United States, yet the federal tax code does not take this variation into I thank Alan Auerbach, Timothy Bartik, David Card, Allan Collard-Wexler, Tom Davidoff, Gilles Duranton, Rob Gillezeau, Erica Greulich, Jim Hines, Darren Lubotsky, Bert Lue, Erin Metcalf, Enrico Moretti, John Quigley, Marit Rehavi, Emmanuel Saez, and William Strange; participants of seminars at Chicago-Harris, Michigan, Northwestern, New York University, the Philadelphia Federal Reserve Bank, Public Policy Institute of California, Syracuse, Toronto-Rotman, University of California, Berkeley, University of California, San Diego, University of Texas at Austin, and Wisconsin; and presentations at the 2007 NBER Summer Institute on Taxation, 2007 National Tax Association Annual Meetings, and 2009 Centre for Economic Policy and Research Public Policy Symposium for their help, input, and advice. Furthermore, I am grateful to the Burch Center for Tax Policy and Public