Local Fiscal Policies and Urban Wage Structures

Abstract

It has long been recognized that average wages vary strikingly across regions and urban areas in part due to differences in local amenities and fiscal policies. However, analogous differences in wage dispersion remain relatively unexplored. The authors develop a model suggesting that, after accounting for individual characteristics, wage dispersion across income groups should reflect differences in the relative valuation of local amenities and fiscal policies. The authors empirically investigate whether there is a link between local taxes and expenditures and the degree of dispersion in the wage structure and find evidence that such a relationship exists.