Essays in aging, taxation, and residential location

TitleEssays in aging, taxation, and residential location
Publication TypeThesis
Year of Publication2006
AuthorsFarnham, MP
Date Published2006
UniversityUniversity of Michigan
KeywordsDemographics, Health Conditions and Status, Housing, Public Policy

In the first paper of this dissertation, I use the panel Health and Retirement Study (HRS) and a national panel of local-level fiscal data to test a lifecycle variant of the Tiebout model. I test whether moves by empty-nest households---presumed to be out of fiscal equilibrium---yield fiscal realignments in the expected direction. I find that cross-state, empty-nest movers experience large fiscal gains in the form of reduced exposure to local school spending and property taxes relative to non-movers and non-empty-nest movers. By contrast, local empty-nest movers experience little fiscal adjustment. These findings suggest that while fiscally motivated households seek adjustment through residential mobility, their ability to adjust through local moves is constrained.In the second paper, I seek to explain why fiscal sorting is weaker for within-state movers. Using data from the first paper, I verify that cross-state empty-nest movers reduce their exposure to state income and sales taxes. In combination with the findings in the first paper, this suggests that cross-state empty-nest movers experience large fiscal gains from relocation. I exploit variation in state fiscal institutions that limit local fiscal discretion and find that school finance equalization is associated with weaker fiscal adjustment by within-state movers. Controlling for centralizing state fiscal institutions and non-fiscal impediments to Tiebout sorting, I identify significant fiscal adjustment by within-state empty-nest movers.In the third paper, I investigate the effect of taxation of homeowner capital gains on residential mobility. I estimate hazard models of homeownership spells using data from the American Housing Survey for 1989-2003. I exploit a quasi-experiment presented by the Taxpayer Relief Act of 1997 (TRA97), which significantly increased exemptions from taxation of homeowner capital gains. I compare move-out hazards for households subject to the capital gains tax prior to TRA97 to move-out hazards for exempt households and compare the mobility response by these groups to implementation of TRA97. I find that move-out hazards are declining in accumulated capital gains for households subject the capital gains tax prior to TRA97. I find evidence of housing lock-in for households under age 55 and non-tax-exempt households over age 55.

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Short TitleEssays in aging, taxation, and residential location
Citation Key6292