Broadening State Capacity / Traviss Cassidy, Mark Dincecco, Ugo Troiano.

Format:

Book

Author/Creator:

Cassidy, Traviss.

Contributor:

National Bureau of Economic Research.

Dincecco, Mark.

Troiano, Ugo.

Series:

Working Paper Series (National Bureau of Economic Research) no. w21373.

NBER working paper series no. w21373

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2015.

Summary:

We provide new evidence about the fiscal and mobility consequences of the introduction of the income tax, a major investment in modern state capacity. Drawing on archival data, we introduce a novel panel database that spans all 50 U.S. states between 1900 and 2008. Our research design exploits the staggered introduction of the income tax across states, while accounting for the potentially selective timing of adoption. We find that tax broadening significantly increased total revenue and expenditure in the short run but not the long run, while revenue and expenditure per capita significantly increased on a permanent basis. To explain these results, we show that the introduction of the income tax led to significant outmigration to non-income-tax states, particularly by high earners. Our findings demonstrate that the introduction of the income tax allowed U.S. states to significantly increase their revenue-raising capacity on a per capita basis. Nonetheless, population mobility provided a partial check on the absolute size of state governments.

Notes:

Print version record

July 2015.