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Assessing The Federal Deduction For State And Local Tax Payments

  • Metcalf, Gilbert E.

This paper examines the distributional and behavioral impacts of ending the deductibility of state and local taxes against the federal individual income tax. I carry out a number of distributional analyses — considering both variation across income and across states — of the subsidy from deductibility as well as the distributional impact of potential partial reforms. I also consider how behavioral responses affect the distributional analysis. Using a large panel of data on state and local governments, I find that deductibility increases reliance on deductible taxes and increases state and local spending out of own-source revenue.

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Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 64 (2011)
Issue (Month): 2 (June)
Pages: 565-90

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Handle: RePEc:ntj:journl:v:64:y:2011:i:2:p:565-90
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  1. Saez, Emmanuel, 2004. "Direct or indirect tax instruments for redistribution: short-run versus long-run," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 503-518, March.
  2. Martin Feldstein & Gilbert Metcalf, 1986. "The Effect of Federal Tax Deductibility on State and Local Taxes and Spending," NBER Working Papers 1791, National Bureau of Economic Research, Inc.
  3. Joseph E. Stiglitz, 1981. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
  4. Harvey S. Rosen, 1988. "Fiscal Federalism: Quantitative Studies," NBER Books, National Bureau of Economic Research, Inc, number rose88-1.
  5. Hettich, Walter & Winer, Stanley, 1984. "A positive model of tax structure," Journal of Public Economics, Elsevier, vol. 24(1), pages 67-87, June.
  6. Metcalf, Gilbert E., 1992. "Deductibility and optimal state and local fiscal policy," Economics Letters, Elsevier, vol. 39(2), pages 217-221, June.
  7. Naito, Hisahiro, 1999. "Re-examination of uniform commodity taxes under a non-linear income tax system and its implication for production efficiency," Journal of Public Economics, Elsevier, vol. 71(2), pages 165-188, February.
  8. Harvey S. Rosen, 1988. "Introduction to "Fiscal Federalism: Quantitative Studies"," NBER Chapters, in: Fiscal Federalism: Quantitative Studies, pages 1-4 National Bureau of Economic Research, Inc.
  9. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
  10. Chernick, Howard, 2005. "On the Determinants of Subnational Tax Progressivity in the U.S," National Tax Journal, National Tax Association, vol. 58(1), pages 93-112, March.
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