Can Redistributive State Taxes Reduce Inequality?
Do income taxes levied at a state or regional level affect the after-tax distribution of income? Or do workers merely move between regions, causing pre-tax wages to adjust? This question is relevant both in across states in the United States, and across countries within the European Union. Using the full income tax parameters for all US states from 1977-2002, I create a “simulated tax redistribution index”, which captures the mechanical impact of the changes in tax policy on the gini coefficient, but is exogenous to any behavioral response. Analyzing the effect of this redistribution index on inequality, I find that gross wages do not adjust so as to fully offset the effect of more redistributive taxes. Exploring the adjustment process further, I create a new class of tax redistribution measures, based on the S-Gini, which differentially weight effects at the bottom and top of the distribution, and conclude that neither taxes that particularly affect the rich or the poor seem to affect the distribution of wages. Redistributive taxes do not appear to affect interstate migration or total state personal income. From a political economy perspective, I also find some evidence that more inequality leads states to implement more redistributive taxes, which may help explain why earlier studies observed a positive relationship between redistribution and inequality.
|Date of creation:||Apr 2005|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +61 2 6125 3807
Fax: +61 2 6125 0744
Web page: http://rse.anu.edu.au/cepr.php
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andrew Leigh, 2005.
"Who Benefits from the Earned Income Tax Credit? Incidence Among Recipients, Coworkers and Firms,"
CEPR Discussion Papers
494, Centre for Economic Policy Research, Research School of Economics, Australian National University.
- Leigh Andrew, 2010. "Who Benefits from the Earned Income Tax Credit? Incidence among Recipients, Coworkers and Firms," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-43, May.
- Leigh, Andrew, 2010. "Who Benefits from the Earned Income Tax Credit? Incidence among Recipients, Coworkers and Firms," IZA Discussion Papers 4960, Institute for the Study of Labor (IZA).
- 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.
- Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-42, March.
- Martin Feldstein & Marian Vaillant, 1994.
"Can State Taxes Redistribute Income?,"
NBER Working Papers
4785, National Bureau of Economic Research, Inc.
- Jon Bakija & Joel Slemrod, 2004.
"Do the Rich Flee from High State Taxes? Evidence from Federal Estate Tax Returns,"
Department of Economics Working Papers
2004-12, Department of Economics, Williams College.
- Jon Bakija & Joel Slemrod, 2004. "Do the Rich Flee from High State Taxes? Evidence from Federal Estate Tax Returns," NBER Working Papers 10645, National Bureau of Economic Research, Inc.
- Alberto Alesina & Reza Baqir & William Easterly, 1999.
"Public Goods And Ethnic Divisions,"
The Quarterly Journal of Economics,
MIT Press, vol. 114(4), pages 1243-1284, November.
- Alberto Alesina & Reza Baqir & William Easterly, 1997. "Public Goods and Ethnic Divisions," NBER Working Papers 6009, National Bureau of Economic Research, Inc.
- Baqir, Reza & Easterly, William & Alesina, Alberto, 1999. "Public Goods and Ethnic Divisions," Scholarly Articles 4551797, Harvard University Department of Economics.
- Alesina, Alberto & Baqir, Reza & Easterly, William, 1999. "Public goods and ethnic divisions," Policy Research Working Paper Series 2108, The World Bank.
- Donaldson, David & Weymark, John A., 1980. "A single-parameter generalization of the Gini indices of inequality," Journal of Economic Theory, Elsevier, vol. 22(1), pages 67-86, February.
- Barrett, Garry F. & Donald, Stephen G., 2009. "Statistical Inference with Generalized Gini Indices of Inequality, Poverty, and Welfare," Journal of Business & Economic Statistics, American Statistical Association, vol. 27, pages 1-17.
- Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004.
"How Much Should We Trust Differences-in-Differences Estimates?,"
The Quarterly Journal of Economics,
MIT Press, vol. 119(1), pages 249-275, February.
- Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002. "How Much Should We Trust Differences-in-Differences Estimates?," NBER Working Papers 8841, National Bureau of Economic Research, Inc.
- Ričardas Zitikis & Joseph L. Gastwirth, 2002. "The Asymptotic Distribution of the S-Gini Index," Australian & New Zealand Journal of Statistics, Australian Statistical Publishing Association Inc., vol. 44(4), pages 439-446, December.
- Joshua L. Rosenbloom & William A. Sundstrom, 2003. "The Decline and Rise of Interstate Migration in the United States: Evidence from the IPUMS, 1850-1990," NBER Working Papers 9857, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:auu:dpaper:490. 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: ()
If references are entirely missing, you can add them using this form.