Broadening State Capacity: Fiscal and Mobility Consequences of the Introduction of the Income Tax

76 Pages Posted: 25 Dec 2017 Last revised: 15 Dec 2020

See all articles by Traviss Cassidy

Traviss Cassidy

University of Alabama

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: December 14, 2020

Abstract

We examine 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 dataset of U.S. states between 1900 and 2010. 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 increased revenue and expenditure more in per capita terms than in absolute terms, with revenue per capita increasing by 15 percent in the long run. Furthermore, we find that the introduction of the income tax led to significant outmigration to non-income-tax states, particularly by high earners. We provide evidence that migration respondsmore to tax increases starting froma zero rate than to equivalent increases starting from a positive rate.

Keywords: State Capacity, Institutional Reform, Taxation, Mobility, USA

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

Suggested Citation

Cassidy, Traviss and Dincecco, Mark and Troiano, Ugo, Broadening State Capacity: Fiscal and Mobility Consequences of the Introduction of the Income Tax (December 14, 2020). Available at SSRN: https://ssrn.com/abstract=3093041 or http://dx.doi.org/10.2139/ssrn.3093041

Traviss Cassidy

University of Alabama ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States

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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Cambridge, MA 02138
United States

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