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Department of Economics, Uppsala University Working Paper Series, Uppsala Center for Fiscal Studies, Department of Economics, Uppsala University

No 2009:12:
Elderly Migration, State Taxes, and What They Reveal

Ali Sina Onder () and Herwig Schlunk ()

Abstract: Empirical results obtained from the 2000 Census elderly migration data using a general gravity model of migration flows confirm earlier findings of the ‘same sign problem’ in the literature, which means that the elderly both migrate from and to states where taxes are higher. The same sign problem is mainly an aggregation problem, and it can be attributed to the heterogeneity in public policies across states that attract the most migrants as well as across states that lose the most migrants. We propose that in a state-level aggregated dataset, it is possible to control for heterogeneity in states’ public policies by controlling for some characteristics of either the origin or the destination state. In a gravity equation estimation for elderly migration, when controlled for heterogeneity, the same sign problem fades away, and the gravity equation shows clearer patterns for elderly migration. In particular, local amenities, tax exemptions, and low inheritance taxes are shown to be significant variables in attracting the elderly into a state.

Keywords: Tiebout Hypothesis; Migration; Taxation; State Taxes; Amenities; (follow links to similar papers)

JEL-Codes: H24; H25; H31; (follow links to similar papers)

26 pages, September 18, 2009

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