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What Drives Tax Policy? Political, Institutional and Economic Determinants of State Tax Policy

Author

Listed:
  • Sarah Robinson
  • Alisa Tazhitdinova

Abstract

We collect detailed data on U.S. state personal income, corporate, sales, cigarette, gasoline, and alcohol taxes over the past 70 years to shed light on the determinants of state tax policies. We provide a comprehensive summary of how tax policy has changed over time, within and across states. We then use permutation analysis, variance decomposition, and machine learning techniques to show that the timing and magnitude of tax changes are not driven by economic needs, state politics, institutional rules, neighbor competition, or demographics. Altogether, these factors explain less than 20% of observed tax variation.

Suggested Citation

  • Sarah Robinson & Alisa Tazhitdinova, 2023. "What Drives Tax Policy? Political, Institutional and Economic Determinants of State Tax Policy," NBER Working Papers 31268, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31268
    Note: DAE EFG LE PE POL
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    More about this item

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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