by Cecile Gaubert, Pat Kline and Danny Yagan.
Place-based redistribution is ubiquitous but has traditionally enjoyed little support among economists. We study a class of spatial equilibrium models highlighting the equity-efficiency tradeoffs that arise when taxes and transfers are indexed to location. Extending classic results on indirect taxation (Atkinson and Stiglitz 1976; Saez 2002), we establish conditions under which transfers from one region to another are welfare improving, even in the presence of an optimal place-blind income tax that already redistributes across worker types. The case for indexing transfers to place is strengthened when preferences for locations are heterogeneous across worker types, but it is dampened by heterogeneity in the productivity of locations. A calibration estimates the potential size of optimal place-based redistribution in the United States.
