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The Introduction of the Income Tax, Fiscal Capacity, and Migration: Evidence from US States

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  • Traviss Cassidy
  • Mark Dincecco
  • Ugo Antonio Troiano

Abstract

We evaluate how fiscal capacity and migration respond to the introduction of the individual income tax, drawing on new panel data on US states from 1900 to 2010. We find that the introduction of the income tax increased revenue per capita by 12 percent in the short term, 15 percent in the medium term, and 17 percent in the long term. The absolute level of revenue, however, did not significantly change over the long term for post–World War II adopters. To explain this, we show that the introduction of the income tax induced significant outmigration to non-income-tax states by middle- and high-earning households.

Suggested Citation

  • Traviss Cassidy & Mark Dincecco & Ugo Antonio Troiano, 2024. "The Introduction of the Income Tax, Fiscal Capacity, and Migration: Evidence from US States," American Economic Journal: Economic Policy, American Economic Association, vol. 16(1), pages 359-393, February.
    • Handle: RePEc:aea:aejpol:v:16:y:2024:i:1:p:359-93
    DOI: 10.1257/pol.20210388
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    Cited by:

    1. Lawrence M. Kessler & Donald Bruce, 2024. "A SALT on real estate? Housing market and migration responses to the limit on the state and local tax deduction," Contemporary Economic Policy, Western Economic Association International, vol. 42(4), pages 683-704, October.
    2. Paudel, Nawaraj S. & Lahiri, Sajal, 2024. "Heterogeneity in the Effect of Size on Internal Migration in the United States: A Gravity Model and PPML Estimator Approach," EconStor Preprints 300726, ZBW - Leibniz Information Centre for Economics.

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    More about this item

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • N32 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - U.S.; Canada: 1913-
    • N42 - Economic History - - Government, War, Law, International Relations, and Regulation - - - U.S.; Canada: 1913-
    • N92 - Economic History - - Regional and Urban History - - - U.S.; Canada: 1913-
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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