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Tax Burden and the Mismeasurement of State Tax Policy

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Author Info
W. Robert Reed (Department of Economics, University of Oklahoma)
Cynthia L. Rogers (Department of Economics, University of Oklahoma)

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Abstract

Tax 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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Publisher Info
Paper provided by EconWPA in its series Public Economics with number 0505001.

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Length: 38 pages
Date of creation: 03 May 2005
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Handle: RePEc:wpa:wuwppe:0505001

Note: Type of Document - doc; pages: 38
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Related research
Keywords: Tax Policy; Fiscal Policy; Tax Burden; State Economic Development; Tax Rates;

Find related papers by JEL classification:
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, and Regional Economics - - General Regional Economics - - - Analysis of Growth, Development, and Changes

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    Other versions:
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  15. Benson, Bruce L & Johnson, Ronald N, 1986. "The Lagged Impact of State and Local Taxes on Economic Activity and Political Behavior," Economic Inquiry, Oxford University Press, vol. 24(3), pages 389-401, July.
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