David R. Agrawal and Kenneth Tester paper, “State Taxation of Nonresident Income and the Location of Work" is forthcoming in the American Economic Journal: Economic Policy.

Abstract: Prior studies show that taxes matter for the residential locations of high-income earners. But, states raise a significant share of revenue from nonresidents. Using variation in state tax rates, we provide causal evidence on the effect of the net-of- tax rate on the location of labor supply for professional golfers. State taxes induce high-income earners to shift employment to low-tax states without a residence change. The elasticity of working in a state is 0.34, and consistent with superstar phenomenon, increases with earnings. Our results suggest a novel margin of mobility responses for top-earners: the spatial relocation of labor supply by nonresidents.

David R. Agrawal is an Assistant Professor in the Department of Economics and an Assistant Professor in the Martin School of Public Policy & Administration at the University of Kentucky.

Kenneth Tester is Postdoctoral Research Fellow with the Tax Administration Research Centre at the University of Exeter. He earned his Ph.D in 2021 from the Department of Economics.