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Interstate tax competition after TRA86

Author

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  • Anne Case

    (Assistant Professor of Economics and Public Affairs, Princeton University)

Abstract

When a governor announces that a tax increase is necessary, how do voters decide whether the governor is representing the situation honestly, or just preparing to line his or her pockets? This paper presents evidence that voters may look at the tax increases in neighboring states to obtain information on whether a tax increase is appropriate and, using this information, decide whether to reelect their governor. The data suggest that comparisons with neighbors influence gubernatorial behavior: Governors are more likely to raise taxes when neighbors are doing the same. TRA86 allows us an extra check on the rnodelpresented: I f the marginal dollar taken in state taxes is more costly to state residents, this may increase the extent to which residents use information provided through neighboring states to sort good governors from bad.

Suggested Citation

  • Anne Case, 1993. "Interstate tax competition after TRA86," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 136-148.
  • Handle: RePEc:wly:jpamgt:v:12:y:1993:i:1:p:136-148
    DOI: 10.2307/3325468
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    References listed on IDEAS

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    1. Alesina, Alberto & Spear, Stephen E., 1988. "An overlapping generations model of electoral competition," Journal of Public Economics, Elsevier, vol. 37(3), pages 359-379, December.
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    3. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
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