Working Paper: NBER ID: w3839
Authors: Gilbert E. Metcalf
Abstract: This paper studies the interaction between the federal and state tax systems during the 1980s and in particular considers how the Tax Reform Act of 1986 affected state tax structure. Using a panel data set on state governments over a nine year period, I estimate tax share equations for six categories of taxes. I find that the state personal income tax is sensitive to changes in its tax price but find a much smaller sensitivity to changes in tax prices for the general sales tax. I then consider various reasons for why the sales tax does not exhibit a sensitivity to changes in tax price and consider the implications of these results for policy makers.
Keywords: tax exporting; federal deductibility; state tax structure; Tax Reform Act of 1986
JEL Codes: H71; H73
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| federal tax policy (H20) | elimination of deductibility (H20) |
| elimination of deductibility (H20) | increased state reliance on sales taxes (H71) |
| federal tax policy (H20) | increased state reliance on sales taxes (H71) |
| federal tax policy (H20) | state tax decisions (H71) |
| federal tax price (H29) | state tax decisions (H71) |
| state tax decisions (H71) | state reliance on sales taxes (H71) |