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Progressive State Taxes and Welfare

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  • Kara D. Smith
  • Bryan Shone

Abstract

Classic fiscal federalism theory dictates that income redistribution should be undertaken at the federal level. However, this maxim is frequently violated at the state level when states employ progressive tax systems to support services such as health care, affordable housing, and welfare. Relatively little research has explored the relationship between progressive tax systems and the potential redistributive benefits. Our goal is to investigate how relatively progressive tax systems are associated with the number of welfare recipients in order to gain a better understanding of the redistributive components in the tax and expenditure sides of the budget. Our article explores this relationship using a panel of data for 50 states, spanning 13 years (1990–2002). The data include welfare recipients, state‐specific information on Temporary Assistance for Needy Families programs (and Aid to Families with Dependent Children for years prior to 1997), multiple measures of tax progressivity, and demographic variables. We find that there is a positive relationship between the relative progressivity of a state's tax portfolio and the number of welfare recipients, which suggests that state tax structures and spending portfolios might be used as complementary tools to redistribute income. This result, however, is sensitive to the specification of progressivity.

Suggested Citation

  • Kara D. Smith & Bryan Shone, 2016. "Progressive State Taxes and Welfare," Poverty & Public Policy, John Wiley & Sons, vol. 8(4), pages 430-437, December.
    • Handle: RePEc:wly:povpop:v:8:y:2016:i:4:p:430-437
    DOI: 10.1002/pop4.162
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    References listed on IDEAS

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    4. Walker, Jack L., 1969. "The Diffusion of Innovations among the American States," American Political Science Review, Cambridge University Press, vol. 63(3), pages 880-899, November.
    5. Chernick, Howard, 2005. "On the Determinants of Subnational Tax Progressivity in the U.S," National Tax Journal, National Tax Association;National Tax Journal, vol. 58(1), pages 93-112, March.
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