Working Paper: NBER ID: w28337
Authors: Cecile Gaubert; Patrick M. Kline; Danny Yagan
Abstract: Governments around the world redistribute to distressed areas by conditioning taxes and transfers on location. We show that when poor households are spatially concentrated, transfers from one location to another can yield equity gains that outweigh their efficiency costs, even when income-based transfers are set optimally. Expressions for the optimal transfer size depend on the mobility of households, the earnings responses of movers, and sorting patterns. Surveys find support for targeting tax credits to poor Americans who live in distressed places. A calibration exercise finds optimal transfers of the same order of magnitude as prominent American zone policies.
Keywords: Place-Based Redistribution; Equity Gains; Efficiency Costs; Spatial Economics
JEL Codes: H20; R10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| place-based redistribution (PBR) (R23) | equity gains (G12) |
| place-based redistribution (PBR) (R23) | overall welfare (I31) |
| transferring funds from wealthy areas to distressed areas (F35) | overall welfare (I31) |
| place-based redistribution (PBR) (R23) | efficiency costs (D61) |
| migration from wealthy areas to distressed areas (R23) | efficiency costs (D61) |
| place-based redistribution (PBR) (R23) | alleviation of efficiency costs (D61) |
| concentration of less skilled households in distressed areas (R23) | overall welfare (I31) |
| optimal subsidy to distressed areas (R38) | concentration of poverty (I32) |