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State Taxation of Nonresident Income and the Location of Work

  • David R. Agrawal
  • Kenneth Tester
American Economic Journal: Economic Policy
vol. 16, no. 1, February 2024
(pp. 447-81)
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Abstract

Prior studies show that taxes matter for the residential locations of high-income earners. But states raise a significant share of revenue from nonresidents. Using variation in state tax rates, we provide causal evidence on the effect of the net-of-tax rate on the location of labor supply for professional golfers. State taxes induce high-income earners to shift employment to low-tax states without a residence change. The elasticity of working in a state is 0.34 and, consistent with the superstar phenomenon, increases with earnings. Our results suggest a novel margin of mobility responses for top earners: the spatial relocation of labor supply by nonresidents.

Citation

Agrawal, David R., and Kenneth Tester. 2024. "State Taxation of Nonresident Income and the Location of Work." American Economic Journal: Economic Policy, 16 (1): 447-81. DOI: 10.1257/pol.20210567

Additional Materials

JEL Classification

  • H71 State and Local Taxation, Subsidies, and Revenue
  • H73 State and Local Government; Intergovernmental Relations: Interjurisdictional Differentials and Their Effects
  • J22 Time Allocation and Labor Supply
  • J44 Professional Labor Markets; Occupational Licensing
  • J61 Geographic Labor Mobility; Immigrant Workers
  • R23 Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics
  • Z22 Sports Economics: Labor Issues
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