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Income taxes, sorting and the costs of housing: evidence from municipal boundaries in Switzerland


Basten, Christoph; von Ehrlich, Maximilian; Lassmann, Andrea (2017). Income taxes, sorting and the costs of housing: evidence from municipal boundaries in Switzerland. Economic Journal, 127(601):653-687.

Abstract

We provide novel evidence on the role of income taxes for housing rents and spatial sorting. Drawing on comprehensive micro-level data, we estimate the responsiveness of households to tax differentials across municipal boundaries. Correcting for unobservable location characteristics and isolating the residential sorting component, we identify an income tax elasticity of rents of about −0.27 to −0.35. In line with non-homothetic preferences, we find that the marginal willingness to pay for lower taxes increases with income. Counterfactual calculations show how an homogenisation of taxes across jurisdictions and an increase in variation of taxes affect rents and income stratification across space.

Abstract

We provide novel evidence on the role of income taxes for housing rents and spatial sorting. Drawing on comprehensive micro-level data, we estimate the responsiveness of households to tax differentials across municipal boundaries. Correcting for unobservable location characteristics and isolating the residential sorting component, we identify an income tax elasticity of rents of about −0.27 to −0.35. In line with non-homothetic preferences, we find that the marginal willingness to pay for lower taxes increases with income. Counterfactual calculations show how an homogenisation of taxes across jurisdictions and an increase in variation of taxes affect rents and income stratification across space.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:May 2017
Deposited On:21 Feb 2018 18:30
Last Modified:14 Mar 2018 17:58
Publisher:Wiley-Blackwell Publishing, Inc.
ISSN:0013-0133
OA Status:Closed
Publisher DOI:https://doi.org/10.1111/ecoj.12489
Other Identification Number:merlin-id:16020

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