Progressive Tax Rates, Income Inequality, and Tax Collections: Implications from COVID-19 Restrictions

19 Pages Posted: 22 Mar 2021 Last revised: 27 Mar 2021

See all articles by Nathan C. Goldman

Nathan C. Goldman

North Carolina State University - Department of Accounting

Gil Sadka

University of Texas at Dallas

Date Written: March 26, 2021

Abstract

During March of 2021, a surprising narrative arose in the media – U.S. states not only did not incur decreases in tax collection during COVID-19, but many states saw substantial increases in collection. We consider this outcome from the perspective of progressive tax rates, income inequality, and the COVID-19-related restrictions put into place by states. All else equal, when taxes are progressive, income inequality increases tax collections. While progressive taxes are meant to combat income inequality, they unintentionally allow inequality-increasing policies to persist longer due to higher tax collections. Restrictions enforced due to COVID-19 are one set of inequality-increasing policies that had a significantly greater effect on low-income versus high-income individuals. We show that states with more progressive taxes enact stricter COVID restrictions, thereby increasing income inequality. More importantly, we find that states are more likely to restrict economic and social activities if they have both progressive tax rates and high income inequality.

Keywords: COVID-19, Progressive Tax Rates, Income Inequality, State Tax Collections, Health Economics; Political Economy

JEL Classification: D63, H24, H31, H51, H53, H71

Suggested Citation

Goldman, Nathan C. and Sadka, Gil, Progressive Tax Rates, Income Inequality, and Tax Collections: Implications from COVID-19 Restrictions (March 26, 2021). Available at SSRN: https://ssrn.com/abstract=3808836 or http://dx.doi.org/10.2139/ssrn.3808836

Nathan C. Goldman (Contact Author)

North Carolina State University - Department of Accounting ( email )

Raleigh, NC 27695-8113
United States

Gil Sadka

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

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