Abstract
This paper evaluates the effectiveness of place-based income tax credits in shaping household residential location decisions in Israel. Exploiting a 2016 policy reform that expanded eligibility to 321 localities – doubling the number of eligible workers – and using administrative panel data on employees from 2000 until 2019, I estimate the effects of the reform on migration patterns among medium- to high-income households, measured by the number of migrants and their composition. The reform significantly increased inflows to newly eligible localities, while outflows did not decline, resulting in a substantial improvement in net migration rates. The composition of migrants shifted toward higher-income households, while the mean distance from the origin locality remained unchanged. Effects were heterogeneous: small Jewish localities with low benefit rates and those in the Southern and Judea and Samaria regions experienced stronger positive impacts, whereas large and Arab localities saw no significant net change. No evidence of adverse spillover effects on neighboring localities was found. Fiscal analysis indicates that the reform incurred substantial costs per additional net migrant, distributed across newcomers and incumbents. These findings suggest that while the policy achieved its stated goal of attracting higher-income households to remote localities, its cost-effectiveness remains limited, underscoring the need for more targeted interventions.
JEL classification: H24, R28, H31
Keywords: Place-based policies; Income tax credits; Regional Migration Policy; Residential location choice; Fiscal incentives; Tax-induced mobility