Politicians Avoid Tax Increases Around Elections

Abstract

We use new annual data on gasoline taxes and corporate income taxes from U.S. states to analyze whether politicians avoid tax increases in election years. Our data provide three items of information: (1) when state politicians enact tax laws, (2) when state politicians implement tax laws on consumers and firms, and (3) the size of tax changes. Using a prespecified research plan that includes regressions of tax rate changes and tax enactment years on time-to-gubernatorial election year indicators, we find that elections reduce the probability of politicians enacting increases in taxes and reduce the size of implemented tax changes, relative to the years just after the elections. These reductions are stronger for gasoline taxes than for corporate income taxes and do not depend on other political, demographic, or macroeconomic conditions. The greater election effects on gasoline taxes than on corporate taxes appears to be, at least in part, due to political salience rather than due to lower overall legislative output in election years.

Keywords: Corporate Income Tax, Electoral Cycle, Gasoline Tax, Preanalysis Plan, Preregistration Plan, Tax Salience

JEL Classification: D72, D78, H24, H71, K34, P16