In Climbing Income Ladder, Location Matters

Source: David Leonhardt, New York Times, July 22, 2013

A study finds the odds of rising to another income level are notably low in certain cities, like Atlanta and Charlotte, and much higher in New York and Boston…. The study — based on millions of anonymous earnings records and being released this week by a team of top academic economists — is the first with enough data to compare upward mobility across metropolitan areas. These comparisons provide some of the most powerful evidence so far about the factors that seem to drive people’s chances of rising beyond the station of their birth, including education, family structure and the economic layout of metropolitan areas. Climbing the income ladder occurs less often in the Southeast and industrial Midwest… By contrast, some of the highest rates occur in the Northeast, Great Plains and West …The team of researchers initially analyzed an enormous database of earnings records to study tax policy, hypothesizing that different local and state tax breaks might affect intergenerational mobility. … he researchers concluded that larger tax credits for the poor and higher taxes on the affluent seemed to improve income mobility only slightly. The economists also found only modest or no correlation between mobility and the number of local colleges and their tuition rates or between mobility and the amount of extreme wealth in a region. But the researchers identified four broad factors that appeared to affect income mobility, including the size and dispersion of the local middle class. All else being equal, upward mobility tended to be higher in metropolitan areas where poor families were more dispersed among mixed-income neighborhoods. …
Related:
The Economic Impacts of Tax Expenditures: Evidence From Spatial Variation Across the U.S.
Source: Raj Chetty, Nathaniel Hendren, Patrick Kline, and Emmanuel Saez, Harvard University, UC Berkeley and NBER, Revised Draft: July 2013

From the abstract:
This paper develops a framework to study the effects of tax expenditures on intergenerational mobility using spatial variation in tax expenditures across the United States. We measure intergenerational mobility at the local (census commuting zone) level based on the correlation between parents’ and children’s earnings. We show that the level of local tax expenditures (as a percentage of AGI) is positively correlated with intergenerational mobility and that this correlation is robust to introducing controls for local area characteristics. To understand the mechanisms driving this correlation, we analyze the largest tax expenditures in greater detail. We find that the level and the progressivity of state income taxes are positively correlated with intergenerational mobility. Mortgage interest deductions are also positively related to intergenerational mobility. Finally, we find significant positive correlations between state EITC policy and intergenerational mobility. We conclude by discussing other applications of this methodology to evaluate the net benefits of tax expenditures.

Upward Mobility
Source: Tom Ashbrook, On Point, July 23, 2013
(audio)