IDEAS home Printed from
   My bibliography  Save this article

Can State Governments Redistribute Income? Using Source-Based Capital Taxes For Income Redistribution


  • Michael F. Williams


Two sentiments are common among economists who study state and local public finance—that source-based capital taxation by subnational governments is a bad idea, and that state governments are powerless to redistribute income. These claims are consistent with the optimal tax literature, if the state is modeled as a small open economy—as a price taker, competing for geographically mobile factors and selling products in perfectly competitive national markets. We reject this view, and contend that the actions of the state government do influence national product and factor prices. This market power gives each state government a modest ability to redistribute income among its citizens. We construct a two-region, four-good, three-factor computational general equilibrium model of an economy, and perform simulations that show that subnational source-based capital taxes have national price effects and that they can be used to modestly redistribute income.

Suggested Citation

  • Michael F. Williams, 2005. "Can State Governments Redistribute Income? Using Source-Based Capital Taxes For Income Redistribution," The International Journal of Applied Economics, Department of General Business, Southeastern Louisiana University, vol. 2(1), pages 62-78, March.
  • Handle: RePEc:ija:ancoec:v:2:y:2005:i:1:p:62-78

    Download full text from publisher

    File URL:
    Download Restriction: no

    More about this item


    State and local public finance; taxation; computational models;

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ija:ancoec:v:2:y:2005:i:1:p:62-78. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dr. Yu Hsing). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.