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State taxation of interstate commerce and income flows: The economics of neutrality

Author

Listed:
  • Alan D. Viard

    (American Enterprise Institute)

  • Ryan Lirette

Abstract

Although the U.S. Supreme Court has long held that the Commerce Clause of the U.S. Constitution prohibits state taxes that discriminate against interstate commerce, it has failed to provide a clear explanation of which taxes are discriminatory. In this paper, we provide an economic analysis that distinguishes neutral and discriminatory state taxation of interstate commerce. We show that state taxes discriminate against interstate commerce if the combined tax burden on inbound and outbound transactions exceeds the tax on intrastate transactions. The analysis reveals that current state individual income tax systems systematically discriminate against interstate commerce.

Suggested Citation

  • Alan D. Viard & Ryan Lirette, 2014. "State taxation of interstate commerce and income flows: The economics of neutrality," AEI Economics Working Papers 795620, American Enterprise Institute.
    • Handle: RePEc:aei:rpaper:795620
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    References listed on IDEAS

    as
    1. Slemrod, Joel & Hansen, Carl & Procter, Roger, 1997. "The seesaw principle in international tax policy," Journal of Public Economics, Elsevier, vol. 65(2), pages 163-176, August.
    2. Daniel Shaviro, 1993. "Federalism in Taxation: The Case for Greater Uniformity," Books, American Enterprise Institute, number 26557, September.
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    Keywords

    tax reform; Interstate commerce;

    JEL classification:

    • A - General Economics and Teaching

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