Working Paper: CEPR ID: DP15826
Authors: Marius Brülhart; Jayson Danton; Raphael Parchet; Jörg Schläpfer
Abstract: We study the incidence of local taxes on the welfare of heterogeneous residents. A structural model of imperfectly mobile households who differ in terms of family status and income allows us to back out local public-good preferences and household mobility. We calibrate the model with plausibly causal tax-base and housing-price elasticity estimates, based on municipality-level data for Switzerland. We find that households with children have stronger preferences for locally provided public goods and are less mobile than households without children. Combined with capitalization of taxes into housing prices and non-homothetic housing demand, this implies that the burden of local incometaxes is mainly borne by above-median income households without children. Even absent a graduated rate schedule, the incidence of local income taxes is found to be more progressive than that of local property taxes.
Keywords: tax incidence; local income taxes; tax capitalization; housing prices
JEL Codes: H24; H71; R21; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| households with children (D19) | stronger preferences for locally provided public goods (H41) |
| stronger preferences for locally provided public goods (H41) | influences mobility and welfare (J62) |
| above-median income households without children (D19) | burden of local income taxes (H22) |
| greater valuation of local public goods (H49) | less negative impact from tax increases for families with children (H31) |
| local income tax rates (H71) | housing prices (R31) |
| capitalization of taxes into housing prices (R31) | disproportionately affects childless households (D19) |
| local income taxes (H71) | more progressive than local property taxes (H71) |
| local income taxes (H71) | benefit lower-income households more than property taxes (H71) |