Working Paper: NBER ID: w31268
Authors: Sarah Robinson; Alisa Tazhitdinova
Abstract: We collect detailed data on U.S. state personal income, corporate, sales, cigarette, gasoline, and alcohol taxes over the past 70 years to shed light on the determinants of state tax policies. We provide a comprehensive summary of how tax policy has changed over time, within and across states. We then use permutation analysis, variance decomposition, and machine learning techniques to show that the timing and magnitude of tax changes are not driven by economic needs, state politics, institutional rules, neighbor competition, or demographics. Altogether, these factors explain less than 20% of observed tax variation.
Keywords: tax policy; state tax; political determinants; institutional factors; economic determinants
JEL Codes: D7; H2; H7
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| economic needs (P36) | tax policy changes (H29) |
| state politics (H79) | tax policy changes (H29) |
| institutional rules (D02) | tax policy changes (H29) |
| neighbor competition (D85) | tax policy changes (H29) |
| demographics (J11) | tax policy changes (H29) |
| federal tax policy (H20) | tax increases (H29) |
| tax policy changes (H29) | tax revenues (H29) |
| timing of policy responses (E63) | tax policy changes (H29) |
| complex legislative process (D72) | tax policy changes (H29) |