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  5. Who Bears the Burden of Local Taxes?

American Economic Journal:
Economic Policy

ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)

Who Bears the Burden of Local Taxes?

  • Marius Brülhart
  • Jayson Danton
  • Raphaël Parchet
  • Jörg Schläpfer
American Economic Journal: Economic Policy (Forthcoming)

Abstract

We study the distributional effects of local taxes and find them to be strikingly progressive. We calibrate a structural model of a multi-municipality labor market with new reduced-form elasticity estimates. Households with children are found to be considerably less mobile than households without children and to have moderately stronger preferences for locally provided public goods. Combined with capitalization of taxes into housing prices and nonhomothetic housing demand, this implies that the incidence of local income taxes mainly falls on above-median income childless households. Increases in local income taxes, even if flat-rate, turn out to be more progressive than property taxes.

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