Tax Burden and the Mismeasurement of State Tax Policy
AbstractTax Burden, defined as the ratio of total tax revenues over personal income, is prominently used to summarize state tax policy. We analyze the empirical relationship between changes in Tax Burden and changes in state tax policy from 1987 to 2000 – as measured by states’ own forecasts of the revenue impacts of tax legislation – and find that Tax Burden contains substantial measurement error. We explain this result by decomposing Tax Burden changes into three components: (1) changes in state tax policy, (2) income-induced changes in revenue that are unrelated to state tax policy, and (3) other factors that do not measure state tax policy. We empirically demonstrate the statistical significance of the second component, highlighting important consequences for studies that estimate the impact of taxes on economic growth.
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Bibliographic InfoPaper provided by EconWPA in its series Public Economics with number 0505001.
Length: 38 pages
Date of creation: 03 May 2005
Date of revision:
Note: Type of Document - doc; pages: 38
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Tax Policy; Fiscal Policy; Tax Burden; State Economic Development; Tax Rates;
Other versions of this item:
- W. Robert Reed & Cynthia L. Rogers, 2006. "Tax Burden and the Mismeasurement of State Tax Policy," Public Finance Review, , vol. 34(4), pages 404-426, July.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
- R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-05-07 (All new papers)
- NEP-GEO-2005-05-07 (Economic Geography)
- NEP-MAC-2005-05-07 (Macroeconomics)
- NEP-PUB-2005-05-07 (Public Finance)
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