State Taxes and Spatial Misallocation

Pablo Fajgelbaum, Eduardo Morales, Juan Carlos Suarez Serrato, and I have a new paper on the impact of state taxes on the US economy. Here is the abstract:

We study state taxes as a potential source of spatial misallocation in the United States. We build a spatial general-equilibrium model in which the distribution of workers, firms, and trade flows across states responds to state taxes and public-service provision. We estimate firm and worker mobility elasticities and preferences for public services using data on the distribution of economic activity and state taxes from 1980 to 2010. A revenue-neutral tax harmonization leads to aggregate real-GDP and welfare gains of 0.7%. Tax cuts by individual states lower own-state tax revenues and economic activity, and generate cross-state spillovers depending on trade linkages.

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About ozidar

I'm an Assistant Professor of Economics at the University of Chicago Booth School of Business and a Faculty Research Fellow at National Bureau of Economic Research. You can follow me on twitter @omzidar. http://faculty.chicagobooth.edu/owen.zidar/index.html
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