NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

How Regional Differences in Taxes and Public Goods Distort Life Cycle Location Choices

Laurence Kotlikoff, Bernd Raffelhueschen

NBER Working Paper No. 3598
Issued in January 1991
NBER Program(s):   PE

Locational choice is one of the fundamental exercises of consumer sovereignty. When regions (or localities within regions) specify different tax rates or supply different amounts of public goods, they distort individuals' location choices. This paper models and measures for the U.S. and New England the location distortion arising from inter regional differences in taxation and supplies of public goods. In our overlapping generations model agents, at each point in their lifespan, choose where to locate taking into account their locational preferences, each region's wage, consumption, and personal capital income taxes, and each region's supply of public goods. The findings suggest that regional fiscal differences play an important role in the location choices of three to four percent of Americans. For these Americans the distortion of location choice is equivalent to roughly a half of a percent of their lifetime consumption. Across all Americans, however, the location distortion induced by U.S. regional fiscal differences is quite small, simply because the differences in tax rates and per capita levels of public goods expenditures across regions are not sufficiently large to induce most Americans to change location. Our analysis indicates, however, that location distortions are an increasing function of regional differences in tax rates and levels of public goods expenditure. Indeed, a doubling of the scale of public finances across all U.S. states would lead to roughly a quadrupling of the location distortion.

download in pdf format
   (427 K)

download in djvu format
   (320 K)

email paper

This paper is available as PDF (427 K) or DjVu (320 K) (Download viewer) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w3598

Published: Laurence J. Kotlikoff & Bernd Raffelhüeschen & Christian D. Hagist, 2009. "How regional differences in taxes and public goods distort life cycle location choices," Hacienda Pública Española, IEF, vol. 189(2), pages 47-79, June.

Users who downloaded this paper also downloaded these:
Hagist and Kotlikoff w11833 Who's Going Broke? Comparing Growth in Healthcare Costs in Ten OECD Countries
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us