The Effect of National Revenues on Sub-National Revenues: Evidence from the U.S.
Brian D. Galle
Boston College Law School
September 23, 2013
International Review of Law and Economics, Forthcoming
Boston College Law School Legal Studies Research Paper No. 282
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. I note the potential implications of these results for fiscal federalism theory and legal controversies over federal conditional spending.
Keywords: fiscal federalism, vertical tax competition, vertical fiscal externalities, conditional spending, state and local tax deduction
JEL Classification: H11, H71, H77, K39Accepted Paper Series
Date posted: February 2, 2013 ; Last revised: October 3, 2013
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