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The effect of national revenues on sub-national revenues evidence from the U.S

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  • Galle, Brian

Abstract

I present for the first time an empirical examination of the impact of total federal revenues on total sub-national proceeds. Prior theory recognizes that the effects of national revenues on sub-national revenue-raising are ambiguous. Earlier studies have focused on vertical relationships between particular tax bases, such as the impact of federal commodity taxes on state or provincial commodity tax rates. Using a panel of data from U.S. states over the recent decade, I find an economically and statistically significant degree of federal crowding in of state revenues. Also, employing a difference-in-differences design to study the impact of a 2004 change in the federal deductibility of state general sales taxes, I find modest evidence that deductibility increased state revenues in states more dependent on the sales tax. I note the potential implications of these results for fiscal federalism theory and legal controversies over federal conditional spending.

Suggested Citation

  • Galle, Brian, 2014. "The effect of national revenues on sub-national revenues evidence from the U.S," International Review of Law and Economics, Elsevier, vol. 37(C), pages 147-155.
    • Handle: RePEc:eee:irlaec:v:37:y:2014:i:c:p:147-155
    DOI: 10.1016/j.irle.2013.08.002
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    More about this item

    Keywords

    H11; H71; H77; K39; Fiscal federalism; Vertical tax competition; Vertical fiscal externalities; Conditional spending; State and local tax deduction;
    All these keywords.

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • K39 - Law and Economics - - Other Substantive Areas of Law - - - Other

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