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Taxation - Effects Of State And Local Tax Policy On Location Decisions

social taxes inheritance estate migration

States have an additional reason to lower their estate and inheritance taxes. They do not want to pressure affluent elderly taxpayers into moving to states that have only pick-up taxes or very-low estate and inheritance taxes.

More generally, states and localities tend to use tax policy to compete for older Americans. They are considered to be attractive residents, especially those who are more affluent, because they are law abiding, often attract other forms of economic activity, and do not impose costs on local school systems.

Duncombe, Robbins, and Wolf (2000) have investigated the effect of state and local fiscal policy on the migration of retirees. They have found that inheritance, income, and property tax policies have more effect on location decisions than expenditures on social services and law enforcement. However, it takes very large tax cuts to provoke even tiny amounts of in-migration. The authors conclude the revenue losses are likely to far outweigh any economic and fiscal benefits derived from attracting older adults. In a much older study, Voss, Gunderson, and Manchin (1988) also concluded that tax factors are significant, but not overwhelmingly important. Both studies suggest that amenities offered by a state, such as climate, are much more important in affecting the migration patterns of older adults. Both studies also do statistical analyses that result in the perverse conclusion that high estate taxes seem to attract certain types of older migrants. This obviously fallacious result would seem to provide a further indication that tax burdens are a relatively unimportant determinant of where older people choose to live.

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