Earmarking Tax Revenues: Leviathan's Secret Weapon?

Excerpt from Adam J. Hoffer and Todd Nesbit, eds., For Your Own Good: Taxes, Paternalism, and Fiscal Discrimination in the Twenty-First Century. Arlington, VA: Mercatus Center at George Mason University, 2018.

Mercatus Research Paper

24 Pages Posted: 1 May 2018

See all articles by George R. Crowley

George R. Crowley

Troy University - Manuel H. Johnson Center for Political Economy

Adam J. Hoffer

University of Wisconsin - La Crosse

Date Written: January 3, 2018

Abstract

You’re probably familiar with the earmarking of selective consumption taxes in your state—for example, gas tax revenues may be dedicated to highway funding. However, tax revenues don’t always “stick” to the program that they’re earmarked to. This chapter shows how earmarked taxes can serve to increase the size of state governments because funds can be moved from program to program. Key takeaways:

(1) States may justify new revenue sources with the argument that they will fund worthy programs. A lottery may be implemented with the argument that its revenues will be used to increase education funding.

(2) Every US state earmarks a percentage of its revenue. In 2005, Rhode Island earmarked just 4 percent of its revenue, compared to Alabama at 84 percent.

Keywords: taxes, consumption taxes, consumer behavior, tax policy

JEL Classification: H2, H71

Suggested Citation

Crowley, George R. and Hoffer, Adam J., Earmarking Tax Revenues: Leviathan's Secret Weapon? (January 3, 2018). Excerpt from Adam J. Hoffer and Todd Nesbit, eds., For Your Own Good: Taxes, Paternalism, and Fiscal Discrimination in the Twenty-First Century. Arlington, VA: Mercatus Center at George Mason University, 2018., Mercatus Research Paper, Available at SSRN: https://ssrn.com/abstract=3171202

George R. Crowley (Contact Author)

Troy University - Manuel H. Johnson Center for Political Economy ( email )

Bibb Graves Hall
Troy, AL 36082
United States

Adam J. Hoffer

University of Wisconsin - La Crosse ( email )

1725 State Street
La Crosse, WI 54601
United States

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