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The introduction of the income tax, fiscal capacity, and migration: evidence from U.S. States

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Listed:
  • Cassidy, Traviss
  • Dincecco, Mark
  • Troiano, Ugo Antonio

Abstract

We evaluate how fiscal capacity and migration respond to the introduction of the individual income tax, drawing on new panel data on U.S. states from 1900 to 2010. We find that states that introduced the income tax experienced a 12 percent increase in total revenue per capita in the near term, a 15 percent increase in the medium term, and a 17 percent increase in the long term. However, the introduction of the income tax did not significantly change the absolute level of revenue over the long term, at least for post-World War II adopters. To explain this difference in the per capita and absolute results, 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

  • Cassidy, Traviss & Dincecco, Mark & Troiano, Ugo Antonio, 2017. "The introduction of the income tax, fiscal capacity, and migration: evidence from U.S. States," MPRA Paper 115343, University Library of Munich, Germany, revised 2022.
  • Handle: RePEc:pra:mprapa:115343
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    More about this item

    Keywords

    state capacity; institutional change; fiscal reform; taxation; migration; USA;
    All these keywords.

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • N42 - Economic History - - Government, War, Law, International Relations, and Regulation - - - U.S.; Canada: 1913-

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