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Do Redistributive State Taxes Reduce Inequality?

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  • Leigh, Andrew

Abstract

Do income taxes levied at a state or regional level affect the after–tax distribution of income? Or do workers merely move between regions, causing pre–tax wages to adjust? Using the full income tax parameters for all U.S. states from 1977–2002, I create a "simulated tax redistribution index" that captures the mechanical impact of changes in tax policy on the Gini coefficient, but is exogenous to any behavioral response. Analyzing the effect of this redistribution index on inequality, I find that gross wages do not adjust so as to undo the effect of changes in state income taxes. On aggregate, more redistributive state taxes do not substantially affect interstate migration, nor do they reduce per–capita state personal income.

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  • Leigh, Andrew, 2008. "Do Redistributive State Taxes Reduce Inequality?," National Tax Journal, National Tax Association;National Tax Journal, vol. 61(1), pages 81-104, March.
    • Handle: RePEc:ntj:journl:v:61:y:2008:i:1:p:81-104
    DOI: 10.17310/ntj.2008.1.04
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    Cited by:

    1. Bargain, Olivier B. & Dolls, Mathias & Immervoll, Herwig & Neumann, Dirk & Peichl, Andreas & Pestel, Nico & Siegloch, Sebastian, 2011. "Tax Policy and Income Inequality in the U.S., 1978-2009: A Decomposition Approach," IZA Discussion Papers 5910, Institute of Labor Economics (IZA).
    2. Giertz, Seth H. & Tosun, Mehmet S., 2012. "Migration Elasticities, Fiscal Federalism, and the Ability of States to Redistribute Income," National Tax Journal, National Tax Association;National Tax Journal, vol. 65(4), pages 1069-1092, December.
    3. Bargain, Olivier B. & Dolls, Mathias & Immervoll, Herwig & Neumann, Dirk & Peichl, Andreas & Pestel, Nico & Siegloch, Sebastian, 2013. "Partisan Tax Policy and Income Inequality in the U.S., 1979-2007," IZA Discussion Papers 7190, Institute of Labor Economics (IZA).
    4. Kerr, William R., 2014. "Income inequality and social preferences for redistribution and compensation differentials," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 62-78.
    5. Ian Davidoff & Andrew Leigh, 2013. "How Do Stamp Duties Affect the Housing Market?," The Economic Record, The Economic Society of Australia, vol. 89(286), pages 396-410, September.
    6. Bargain, Olivier & Dolls, Mathias & Immervoll, Herwig & Neumann, Dirk & Peichl, Andreas & Pestel, Nico & Siegloch, Sebastian, 2014. "Tax policy and income inequality in the US, 1979-2007," ZEW Discussion Papers 14-001, ZEW - Leibniz Centre for European Economic Research.
    7. Joshua Rauh & Ryan J. Shyu, 2019. "Behavioral Responses to State Income Taxation of High Earners: Evidence from California," NBER Working Papers 26349, National Bureau of Economic Research, Inc.
    8. Diego Martínez-Navarro & Ignacio Amate-Fortes & Almudena Guarnido-Rueda, 2020. "Inequality and development: is the Kuznets curve in effect today?," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 37(3), pages 703-735, October.
    9. Howard Chernick, 2010. "Redistribution at the State and Local Level: Consequences for Economic Growth," Public Finance Review, , vol. 38(4), pages 409-449, July.
    10. Rubolino, Enrico, 2019. "The efficiency and distributive effects of local taxes: evidence from Italian municipalities," ISER Working Paper Series 2019-02, Institute for Social and Economic Research.
    11. Giertz, Seth H. & Ramezani, Rasoul, 2018. "Taxes, Wage Capitalization and the Ability of States to Redistribute Income," GLO Discussion Paper Series 291, Global Labor Organization (GLO).
    12. Peter Bluestone & Carolyn Bourdeaux, 2019. "Dynamic Revenue Analysis: Experience of the States," Center for State and Local Finance Working Paper Series cslf1911, Andrew Young School of Policy Studies, Georgia State University.
    13. Young, Cristobal & Varner, Charles, 2011. "Millionaire Migration and State Taxation of Top Incomes: Evidence From a Natural Experiment," National Tax Journal, National Tax Association;National Tax Journal, vol. 64(2), pages 255-283, June.
    14. Vanesa Jorda & Jose M. Alonso, 2020. "What works to mitigate and reduce relative (and absolute) inequality?: A systematic review," WIDER Working Paper Series wp-2020-152, World Institute for Development Economic Research (UNU-WIDER).

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