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Broadening State Capacity

Author

Listed:
  • Traviss Cassidy
  • Mark Dincecco
  • Ugo Troiano

Abstract

We provide new evidence about the fiscal and mobility consequences of the introduction of the income tax, a major investment in modern state capacity. Drawing on archival data, we introduce a novel panel database that spans all 50 U.S. states between 1900 and 2008. Our research design exploits the staggered introduction of the income tax across states, while accounting for the potentially selective timing of adoption. We find that tax broadening significantly increased total revenue and expenditure in the short run but not the long run, while revenue and expenditure per capita significantly increased on a permanent basis. To explain these results, we show that the introduction of the income tax led to significant outmigration to non-income-tax states, particularly by high earners. Our findings demonstrate that the introduction of the income tax allowed U.S. states to significantly increase their revenue-raising capacity on a per capita basis. Nonetheless, population mobility provided a partial check on the absolute size of state governments.

Suggested Citation

  • Traviss Cassidy & Mark Dincecco & Ugo Troiano, 2015. "Broadening State Capacity," NBER Working Papers 21373, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21373
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    References listed on IDEAS

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    Cited by:

    1. Ugo Troiano, 2017. "Intergovernmental Cooperation and Tax Enforcement," NBER Working Papers 24153, National Bureau of Economic Research, Inc.
    2. Burret, Heiko T. & Feld, Lars P., 2018. "(Un-)intended effects of fiscal rules," European Journal of Political Economy, Elsevier, vol. 52(C), pages 166-191.
    3. Ugo Troiano, 2017. "Do Taxes Increase Economic Inequality? A Comparative Study Based on the State Personal Income Tax," NBER Working Papers 24175, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • N0 - Economic History - - General
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
    • N41 - Economic History - - Government, War, Law, International Relations, and Regulation - - - U.S.; Canada: Pre-1913
    • N42 - Economic History - - Government, War, Law, International Relations, and Regulation - - - U.S.; Canada: 1913-

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