In the United States, workers in cities offering above-average wages – cities with high productivity, low quality-of-life, or inefficient housing sectors – pay 30 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 17 percent and land and housing prices by 28 and 6 percent, causing locational inefficiencies costing 0.33 percent of income, or $40 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.
Published: Albouy, David Y. "The Unequal Geographic Burden of Federal Taxation" Journal of Political Economy, vol 117, no. 4, (August 2009) pp. 635-667
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This paper was revised on December 5, 2011
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