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Age Demographics and the Tax Mix in US States

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  • Cameron A. Shelton

Abstract

Countries with higher old-age dependency rates tend to rely less heavily on income taxes and more heavily on consumption taxes. We investigate this relationship in a panel of US states. To address endogeneity in a sub-national context due to migration, we use lagged in-state births to develop a new instrument for old-age dependency which is shown to be strong and relevant to the results. In an unbalanced panel spanning 1979–2013, we do find a negative relationship between old-age dependency ratio and income tax reliance. But, though persistent across specifications, it is not statistically significant under either ordinary least squares or instrumental variables despite strong instruments and a healthy sample size. We speculate as to what underlying mechanism might deliver a correlation that is robust among the Organisation for Economic Co-operation and Development countries but tepid among US states.

Suggested Citation

  • Cameron A. Shelton, 2022. "Age Demographics and the Tax Mix in US States," Public Finance Review, , vol. 50(1), pages 120-130, January.
    • Handle: RePEc:sae:pubfin:v:50:y:2022:i:1:p:120-130
    DOI: 10.1177/10911421221094026
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    References listed on IDEAS

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    1. Conway, Karen Smith & Houtenville, Andrew J., 2001. "Elderly Migration and State Fiscal Policy: Evidence from the 1990 Census Migration Flows," National Tax Journal, National Tax Association, vol. 54(n. 1), pages 103-24, March.
    2. Farnham, Martin & Sevak, Purvi, 2006. "State fiscal institutions and empty-nest migration: Are Tiebout voters hobbled?," Journal of Public Economics, Elsevier, vol. 90(3), pages 407-427, February.
    3. Luo, Weijie, 2019. "Demography and the composition of taxes: Evidence from international panel data," Economics Letters, Elsevier, vol. 183(C), pages 1-1.
    4. Karen Smith Conway & Andrew J. Houtenville, 2003. "Out with the Old, In with the Old: A Closer Look at Younger Versus Older Elderly Migration," Social Science Quarterly, Southwestern Social Science Association, vol. 84(2), pages 309-328, June.
    5. Conway, Karen Smith & Rork, Jonathan C., 2012. "No Country for Old Men (Or Women) — Do State Tax Policies Drive Away the Elderly?," National Tax Journal, National Tax Association;National Tax Journal, vol. 65(2), pages 313-356, June.
    6. Conway, Karen Smith & Houtenville, Andrew J., 2001. "Elderly Migration and State Fiscal Policy: Evidence From the 1990 Census Migration Flows," National Tax Journal, National Tax Association;National Tax Journal, vol. 54(1), pages 103-124, March.
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    Cited by:

    1. Klaus Gründler & Niklas Potrafke, 2023. "Population Aging, Retirement, and Aggregate Productivity," CESifo Working Paper Series 10594, CESifo.

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    More about this item

    Keywords

    Old-age dependency; income tax; consumption tax; fertility rate;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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