Working Paper: NBER ID: w2040
Authors: Joseph Gyourko; Joseph Tracy
Abstract: A new test of the compensating wage differential model is proposed. The logic behind Roback's model showing how differences in nonproduced amenities may be reflected in intercity wage differentials is extended to the case of differences in local fiscal conditions, represented by tax rates and publicly produced services. Results show that differences in local tax rates and services provisions do generate compensating wage differentials across cities. The effects of a particularly large set of taxes and effective services output measures are examined.
Keywords: Local Fiscal Conditions; Wage Differentials; Labor Markets; Public Services
JEL Codes: J31; H71
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| local tax rates and services provision (H71) | compensating wage differentials (J31) |
| violent crime incidence (K42) | compensating differential in annual earnings (J31) |
| fire service quality (L15) | compensating differential in annual earnings (J31) |
| hospital beds per thousand capita (I11) | annual earnings (J31) |
| effective property tax rate (H29) | annual earnings (J31) |
| student-to-teacher ratio (A21) | wages (J31) |