Paper/Speech Details of Conference Program for the 21st NISPAcee Annual Conference Program Overview Public Finance and Public Financial Management Author(s) Annika Jaansoo University of Twente Enschede Netherlands Janno Reiljan, University of Tartu, Tartu, Estonia Title The divergence of working and living place as the factor of municipalities´development in Estonia File Paper files are available only for conference participants, please login first. Presenter Annika Jaansoo Abstract Local governments are increasingly in indirect competition with each other because of increasing mobility of population. Differentials in income and differentials in the level and quality of public sector services give rise to migration of people (often the more active and dynamic part of the population: mostly young people searching for their first working and living place) from less developed regions to more developed regions or to regions with more development potential. Such migration can take the form of „full“ migration (i.e. when people move to a new working an living place in another region), but can also involve commuting: living in one region and working in another. Economic impacts of migration within the European Union have been extensively studied, but mainly from the transnational perspective (i.e. migration between EU member states) (J.Marvakov 2012; T. Marthä, L. Wintr 2009: F. Constantin 2004; M. Janssen, M. Velde 2003; etc). Less well-studied is in-state migration. This is especially true for the kind of migration the paper focuses on: commuting, resulting in working place and residencency discrepancy. Such migration raises a number of controversial issues for local governments – jobs are increasingly concentrated in larger centres but at the same time many people are still connected with their living places in rural areas and they do not want to switch residence. The result is a growing gap between (often rural) residential-municipalities and (often urban) work-providing-municipalities. Depending on the tax system and fiscal equalization system in place, this gap not only has direct economic implications for the municipalities at hand, that were mentioned above, but also significant – indirect – fiscal impacts (in terms of avalaible revenues and needed expenditures), which are generally underresearched. In Estonia, some national institutions have studied commuting between municipalities (Ministry of Internal Affairs, 2010; PARE 2004), but not its fiscal impacts. At the same time the work-residence discrepancy has a significant influence on local governments of Estonia, because the municipality where the person lives gets a fixed share in the revenue of the personal income tax. This is calculated as follows: the personal income tax is 21% of the taxable income of a person and local government gets 11,4% of that 21%. Revenue from the personal income tax amounts up to 50% of local governments budgets. This paper aims to fill that gap and studies the scope and dynamics of commuting and its fiscal impacts on municipalities in Estonia, mainly in terms of revenues from the personal income tax. The results of the study are providing a comprehensive assessment of the effects of work and residence divergence to the differences of local governments development. The paper is structured as follows: - A brief introduction (section 1) will be followed by a review of what is known in the literature about the nature and economic and fiscal impacts of commuting within the context of municipal development (section 2); - section 3 introduces the methodology of the empirical analysis and deals with issues of data gathering and of reliability of the data used. Data from the Estonian Tax and Custom Board are used (for the period 2010-2011), focusing on data on individuals’ gross salary and data on the amount and allocation of personal income tax into local governments’ budgets; - section 4 presents the findings of the empirical analysis of migration as a source of resource re-distribution between municipalities; - section 5 discusses the outcomes of the analysis and its implications for the Estonian systems of taxation and fiscal equalization; - section 6 concludes.
