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Tax Structure and Public Sector Growth

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  • Daniel R. Feenberg
  • Harvey S. Rosen

Abstract

It has been hypothesized that a jurisdiction's tax structure exerts an independent effect upon the growth of its public sector. We test this hypothesis by examining the relationship between the growth of state general expenditure and the elasticity of tax revenues with respect to income. The work takes advantage of a very careful set of income elasticities for the personal income and sales tax systems for each state, for every year from 1978 to 1983. The main conclusion is that the data do not support the notion that the form of the tax structure exerts an independent effect on public sector growth.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2020.

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Date of creation: Sep 1986
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Publication status: published as Feenberg, Daniel R. and Harvey S. Rosen. "Tax Structure and Public Sector Growth," Journal of Public Economics, Vol. 32, No. 1, Feb. 1987, pp. 185-201 .
Handle: RePEc:nbr:nberwo:2020

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  1. Thomas J. D, 1982. "Tax Elasticity and the Growth of Local Public Expenditure," Public Finance Review, , vol. 10(3), pages 385-392, July.
  2. Courant, Paul N & Gramlich, Edward M & Rubinfeld, Daniel L, 1979. "Public Employee Market Power and the Level of Government Spending," American Economic Review, American Economic Association, American Economic Association, vol. 69(5), pages 806-17, December.
  3. Brennan,Geoffrey & Buchanan,James M., 1980. "The Power to Tax," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521233293.
  4. Borcherding, Thomas E & Deacon, Robert T, 1972. "The Demand for the Services of Non-Federal Governments," American Economic Review, American Economic Association, American Economic Association, vol. 62(5), pages 891-901, December.
  5. Samuel H. Baker, 1983. "The Determinants of Median Voter Tax Liability: an Empirical Test of the Fiscal Illusion Hypothesis," Public Finance Review, , vol. 11(1), pages 95-108, January.
  6. Charles H. Breeden & William J. Hunter, 1985. "Tax Revenue and Tax Structure," Public Finance Review, , vol. 13(2), pages 216-224, April.
  7. Wu, De-Min, 1973. "Alternative Tests of Independence Between Stochastic Regressors and Disturbances," Econometrica, Econometric Society, Econometric Society, vol. 41(4), pages 733-50, July.
  8. Eleanor Craig & A. Heins, 1980. "The effect of tax elasticity on government spending," Public Choice, Springer, Springer, vol. 35(3), pages 267-275, January.
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Cited by:
  1. Esteller-Moré, Álex & Solé-Ollé, Albert, 1999. "Vertical income tax externalities and fiscal interdependence: evidence from the US," ZEW Discussion Papers 99-28, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Gilbert E. Metcalf, 1995. "Value-Added Taxation: A Tax Whose Time Has Come?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(1), pages 121-140, Winter.
  3. Douglas Holtz-Eakin, 1988. "The Line Item Veto and Public Sector Budgets: Evidence from the States," NBER Working Papers 2531, National Bureau of Economic Research, Inc.
  4. Walter Misiolek & Harold Elder, 1988. "Tax structure and the size of government: An empirical analysis of the fiscal illusion and fiscal stress arguments," Public Choice, Springer, Springer, vol. 57(3), pages 233-245, June.
  5. Michael Marlow & David Joulfaian, 1989. "The determinants of off-budget activity of state and local governments," Public Choice, Springer, Springer, vol. 63(2), pages 113-123, November.
  6. Boarnet, Marlon G. & Glazer, Amihai, 2002. "Federal grants and yardstick competition," Journal of Urban Economics, Elsevier, vol. 52(1), pages 53-64, July.
  7. Alejandro Esteller-Moré & Albert Solé-Ollé, 2000. "Vertical income tax externalities and fiscal interdependence: Evidence from the US Model," Working Papers 2000/1, Institut d'Economia de Barcelona (IEB).
  8. Alan J. Auerbach, 1990. "Public Sector Dynamics," NBER Working Papers 3508, National Bureau of Economic Research, Inc.
  9. Helen F. Ladd, 1993. "State responses to the TRA86 revenue windfalls: A new test of the flypaper effect," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 82-103.

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