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Taxes and Telework: The Impacts of State Income Taxes in a Work-from-Home Economy

Author

Listed:
  • David R. Agrawal
  • Jan K. Brueckner

Abstract

This paper studies the interstate effects of decentralized taxation and spending when individuals can work from home (WFH). Because WFH decouples population and employment, the analysis of tax impacts on state populations, employment levels, wages and housing prices is radically different than in the standard model where individuals live and work in the same state. Which state can tax teleworkers—leading to either source or residence taxation—matters for tax impacts under WFH. Our main findings, which pertain to the employment and wage effects of WFH, show that a shift from a non-WFH economy to WFH reduces employment and raises the wage in high-tax states, with larger effects under source taxation. Once WHF is established, an increase in a state’s tax rate either reduces employment further while raising the wage (source taxation) or leaves the labor market unaffected (residence taxation). The analysis also shows that the residence-taxation equilibrium is efficient, while source taxation is inefficient.

Suggested Citation

  • 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.
    • Handle: RePEc:ces:ceswps:_9975
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp9975.pdf
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    References listed on IDEAS

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    Cited by:

    1. David R. Agrawal & Aline Bütikofer, 2022. "Public finance in the era of the COVID-19 crisis," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(6), pages 1349-1372, December.
    2. Agrawal, David R. & Shybalkina, Iuliia, 2023. "Online shopping can redistribute local tax revenue from urban to rural America," Journal of Public Economics, Elsevier, vol. 219(C).
    3. Brueckner, Jan K. & Sayantani, S., 2023. "Intercity impacts of work-from-home with both remote and non-remote workers," Journal of Housing Economics, Elsevier, vol. 59(PB).

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    More about this item

    Keywords

    state income taxes; telework; work-from-home;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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