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Tax Burden and the Mismeasurement of State Tax Policy

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  • W. Robert Reed

    (Department of Economics, University of Oklahoma)

  • Cynthia L. Rogers

    (Department of Economics, University of Oklahoma)

Abstract

Tax Burden, defined as the ratio of total tax revenues over personal income, is prominently used to summarize state tax policy. We analyze the empirical relationship between changes in Tax Burden and changes in state tax policy from 1987 to 2000 – as measured by states’ own forecasts of the revenue impacts of tax legislation – and find that Tax Burden contains substantial measurement error. We explain this result by decomposing Tax Burden changes into three components: (1) changes in state tax policy, (2) income-induced changes in revenue that are unrelated to state tax policy, and (3) other factors that do not measure state tax policy. We empirically demonstrate the statistical significance of the second component, highlighting important consequences for studies that estimate the impact of taxes on economic growth.

Suggested Citation

  • W. Robert Reed & Cynthia L. Rogers, 2005. "Tax Burden and the Mismeasurement of State Tax Policy," Public Economics 0505001, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwppe:0505001
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    References listed on IDEAS

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    Cited by:

    1. Reed, W. Robert, 2008. "The Robust Relationship Between Taxes and U.S. State Income Growth," National Tax Journal, National Tax Association;National Tax Journal, vol. 61(1), pages 57-80, March.
    2. Richard Funderburg & Timothy J. Bartik & Alan H. Peters & Peter S. Fisher, 2013. "The Impact Of Marginal Business Taxes On State Manufacturing," Journal of Regional Science, Wiley Blackwell, vol. 53(4), pages 557-582, October.
    3. Reed, W. Robert, 2006. "Democrats, republicans, and taxes: Evidence that political parties matter," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 725-750, May.
    4. Lesia Tkachyk & Mariya Rubakha & Nataliia Ilkiv, 2020. "Optimization of Corporate Profit Taxation in the Context of Stimulating Their Investment Activity: The Case of Ukraine," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 28-51.
    5. Sohani Fatehin & David L. Sjoquist, 2021. "State and Local Taxes and Employment by Wage Level," Economic Development Quarterly, , vol. 35(1), pages 53-65, February.
    6. Rogers, Cynthia L. & Wu, Chen, 2012. "Employment by foreign firms in the U.S.: Do state incentives matter?," Regional Science and Urban Economics, Elsevier, vol. 42(4), pages 664-680.
    7. Lester Hadsell & Chad Colarusso, 2009. "Seasonal Homes and the Local Property Tax: Evidence from New York State," American Journal of Economics and Sociology, Wiley Blackwell, vol. 68(2), pages 581-602, April.
    8. Martynenko, Valentyna, 2019. "Estimation Of The Overall Tax Burden On The Economy In Ukraine," EUREKA: Social and Humanities, Scientific Route OÜ, issue 4, pages 23-29.
    9. Wu, Chen & Rogers, Cynthia L., 2017. "One Size Does Not Fit All: Foreign Direct Investment Promotion Policies across US States," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 48(1), April.
    10. W. Robert Reed & Cynthia L. Rogers & Mark Skidmore, 2008. "On Estimating Marginal Tax Rates and Tax Progressivities for U.S. States," Working Papers in Economics 08/17, University of Canterbury, Department of Economics and Finance.
    11. Dan S. Rickman & Hongbo Wang, 2024. "Estimating the economic effects of US state and local fiscal policy: A synthetic control method matching‐regression approach," Growth and Change, Wiley Blackwell, vol. 55(2), June.

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    More about this item

    Keywords

    Tax Policy; Fiscal Policy; Tax Burden; State Economic Development; Tax Rates;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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