Local labor markets as a taxable location factor? Evidence from a shock to foreign labor supply

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URN:	urn:nbn:de:bsz:180-madoc-648071
Document Type:	Working paper
Year of publication:	2023
The title of a journal, publication series:	ZEW Discussion Papers
Volume:	23-012
Place of publication:	Mannheim
Publication language:	English
Institution:	Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung Außerfakultäre Einrichtungen > Graduate School of Economic and Social Sciences - CDSE (Economics)
MADOC publication series:	Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject:	330 Economics
Classification:	JEL: H71 , R23 , J61,
Individual keywords (German):	productive amenities , agglomeration , cross-border commuting, skill shortage , tax competition , Swiss-EU agreement
Abstract:	This paper examines how municipal taxes respond to the local impact of a labor market shock. The analysis exploits a commuting policy that liberalized cross-border labor markets between Switzerland and the EU. The reform was implemented at a time of skilled labor shortages and led to a substantial inflow of cross-border workers into Swiss border municipalities. Identification rests on exogenous regional variation in treatment intensities based on commuting times. The results show that corporate tax changes are significantly larger than zero in highly-treated border municipalities after the reform and when compared to less-affected regions. This is consistent with the theory according to which governments can tax rents that arise from productive location factors – an interpretation supported by several model extensions and robustness tests. The results on personal income taxation indicate a similar yet smaller and lagged response.