Should Commuting Expenses Be Tax Deductible? A Welfare Analysis

Abstract

This paper asks whether or not commuting expenses should be tax deductible. In order to answer this question, a simple multiregion model of imperfect household and worker mobility is employed. The paper shows that deductibility is clearly inefficient only if households are perfectly mobile and if households cannot choose their place of work. If the region of work is not exogenously fixed, commuting expenses should be deductible at more than 100%, even if households choose simultaneously the place of work and the region of residence, and even if tax rates are not standardized within the federation.

Keywords: income tax, relief, household mobility, labor mobility, commuting expenses, optimum taxation