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On Estimating Marginal Tax Rates and Tax Progressivities for U.S. States

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Author Info

  • W. Robert Reed

    ()
    (University of Canterbury)

  • Cynthia L. Rogers
  • Mark Skidmore

Abstract

This research presents a simple procedure for improving state-specific estimates of marginal tax rates (MTR’s). Most research employing MTR’s follows a procedure developed by Koester and Kormendi (K&K, 1987). Unfortunately, the time-invariant nature of the K&K estimates precludes their use as explanatory variables in panel data studies. Furthermore, their estimates are not based on statutory tax parameters. In contrast, our procedure produces timevarying estimates of MTR’s that are directly related to observed changes in statutory tax parameters. Using comprehensive data on state tax policy parameters, our procedure produces state-specific MTR’s estimates for all 50 states over the years 1977-2004. We compare our refined MTR’s to alternative estimates and evaluate implications for estimating tax progressivity for US states.

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File URL: http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/0817.pdf
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Bibliographic Info

Paper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 08/17.

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Length: 44 pages
Date of creation: 08 Aug 2008
Date of revision:
Handle: RePEc:cbt:econwp:08/17

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Keywords: State tax revenues; Marginal tax rates; Tax burden; Tax progressivity; Economic growth.;

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  1. Michael Wasylenko, 1997. "Taxation and economic development: the state of the economic literature," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 37-52.
  2. Merriman, David & Skidmore, Mark, 2000. "Did Distortionary Sales Taxation Contribute to the Growth of the Service Sector?," National Tax Journal, National Tax Association, vol. 53(n. 1), pages 125-42, March.
  3. Suits, Daniel B, 1977. "Measurement of Tax Progressivity," American Economic Review, American Economic Association, vol. 67(4), pages 747-52, September.
  4. W. Robert Reed & Cynthia L. Rogers, 2005. "Tax Burden and the Mismeasurement of State Tax Policy," Public Economics 0505001, EconWPA.
  5. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-29, October.
  6. Koester, Reinhard B & Kormendi, Roger C, 1989. "Taxation, Aggregate Activity and Economic Growth: Cross-Country Evidence on Some Supply-Side Hypotheses," Economic Inquiry, Western Economic Association International, vol. 27(3), pages 367-86, July.
  7. Asea, Patrick & Mendoza, Enrique G & Milesi-Ferretti, Gian Maria, 1996. "On the Ineffectiveness of Tax Policy in Altering Long- Run Growth: Harberger's Superneutrality Conjecture," CEPR Discussion Papers 1378, C.E.P.R. Discussion Papers.
  8. Lee, Young & Gordon, Roger H., 2005. "Tax structure and economic growth," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 1027-1043, June.
  9. Padovano, Fabio & Galli, Emma, 2002. "Comparing the growth effects of marginal vs. average tax rates and progressivity," European Journal of Political Economy, Elsevier, vol. 18(3), pages 529-544, September.
  10. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
  11. Skidmore, Mark, 1999. " Tax and Expenditure Limitations and the Fiscal Relationships between State and Local Governments," Public Choice, Springer, vol. 99(1-2), pages 77-102, April.
  12. W. Robert Reed, 2006. "The Robust Relationship Between Taxes and State Economic Growth," Working Papers in Economics 06/13, University of Canterbury, Department of Economics and Finance.
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