Do Taxes Increase Economic Inequality? A Comparative Study Based on the State Personal Income Tax
40 Pages Posted: 28 Dec 2017
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Do Taxes Increase Economic Inequality? A Comparative Study Based on the State Personal Income Tax
Do Taxes Increase Economic Inequality? A Comparative Study Based on the State Personal Income Tax
Date Written: December 23, 2017
Abstract
I present new quasi-experimental evidence on the relationship between tax policies and the distribution of income. I focus on twentieth century United States, and on the personal income tax, since its inception. I study three major policy events that, as the existing literature shows, significantly raised the revenues from the income tax: the introduction of the state personal income tax, the introduction of tax withholding together with third-party reporting, and the intergovernmental agreements between the federal and state governments to coordinate tax auditing efforts. All the three policies were introduced in a staggered fashion and increased tax revenues, but had different fiscal consequences. Despite this, I find that the distribution of income raised after all the tax policy events. The result is robust to different measures of economic inequality and econometric specifications.
Keywords: Income Inequality, Tax Policy, Public Economics, Economic History
JEL Classification: D63, H23, N32
Suggested Citation: Suggested Citation