Broadening the State: Policy Responses to the Introduction of the Income Tax

25 Pages Posted: 4 Jul 2015

See all articles by Mark Dincecco

Mark Dincecco

University of Michigan at Ann Arbor

Ugo Troiano

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: July 2, 2015

Abstract

We present new evidence about a mechanism -- the broadening of the tax base -- through which governments increase state capacity. Our difference-in-differences identification strategy exploits the staggered introduction of the income tax across twentieth-century US states. We find that tax broadening is associated with 1) a significant increase in total revenues and 2) a significant increase in total government expenditures, and in particular spending on public goods in education and health. We show suggestive evidence that political ideology affects policy responses to the broadening of the tax base.

Keywords: taxation, public goods, education expenditures, politics, US states

JEL Classification: D78, H11, H41, H71, H75, N42, N92

Suggested Citation

Dincecco, Mark and Troiano, Ugo, Broadening the State: Policy Responses to the Introduction of the Income Tax (July 2, 2015). Available at SSRN: https://ssrn.com/abstract=2626165 or http://dx.doi.org/10.2139/ssrn.2626165

Mark Dincecco

University of Michigan at Ann Arbor ( email )

HOME PAGE: http://sites.google.com/umich.edu/dincecco

Ugo Troiano (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

HOME PAGE: http://sites.google.com/a/umich.edu/troiano

National Bureau of Economic Research (NBER)

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