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Is There a Connection Between Reciprocity and Tax Competition?

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  • Jonathan C. Rork
  • Gary A. Wagner

Abstract

One challenge states face in designing income tax systems is deciding how to treat nonresident earners. Numerous states have entered into reciprocity agreements with other states that exclude nonresidents’ income from the tax base. These agreements provide a unique opportunity to explore the nature of state tax competition. The authors demonstrate that not only do reciprocity agreements allow states to have higher income tax rates than do nonreciprocity states but also that the states with reciprocity agreements exhibit increased levels of competition over other taxes.

Suggested Citation

  • Jonathan C. Rork & Gary A. Wagner, 2012. "Is There a Connection Between Reciprocity and Tax Competition?," Public Finance Review, , vol. 40(1), pages 86-115, January.
    • Handle: RePEc:sae:pubfin:v:40:y:2012:i:1:p:86-115
    DOI: 10.1177/1091142111419486
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    Cited by:

    1. David Agrawal & William H. Hoyt, 2014. "State Tax Differentials, Cross-Border Commuting, and Commuting Times in Multi-State Metropolitan Areas," CESifo Working Paper Series 4852, CESifo.
    2. David R. Agrawal & James M. Poterba & Owen M. Zidar, 2024. "Policy Responses to Tax Competition: An Introduction," NBER Working Papers 32090, National Bureau of Economic Research, Inc.
    3. Wagner, Gary A. & Rork, Jonathan C., 2023. "Does state tax reciprocity affect interstate commuting? Evidence from a natural experiment," Regional Science and Urban Economics, Elsevier, vol. 102(C).
    4. David R. Agrawal & Jan K. Brueckner, 2022. "Taxes and Telework: The Impacts of State Income Taxes in a Work-from-Home Economy," CESifo Working Paper Series 9975, CESifo.
    5. Yulong Chen & Kevin D. Duncan & Liyuan Ma & Peter F. Orazem, 2023. "How relative marginal tax rates affect establishment entry at state borders," Small Business Economics, Springer, vol. 60(3), pages 1081-1103, March.

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