Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/266010 
Year of Publication: 
2022
Series/Report no.: 
CESifo Working Paper No. 9975
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
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.
Subjects: 
state income taxes
telework
work-from-home
JEL: 
H20
H73
R12
Document Type: 
Working Paper
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