Wage Taxes and Commuters—the Case of Pennsylvania

Abstract

The primary purpose of this paper is to study the relationship between worker flows and local wage taxes. It is motivated by results of theoretical analysis on asymmetric tax competition for mobile labor. A sample of 176 localities in metropolitan areas of Pennsylvania is examined. The Two Stage Least Squares estimation results show that inter-jurisdictional worker flow has an important effect on the determination of local wage tax rates. On the other hand, effect of wage tax rates on worker flow is not significant, but other factors including population, per capita income and per capita capital stock do have significant effects.