What Drives Tax Policy? Political, Institutional and Economic Determinants of State Tax Policy in the Past 70 Years

88 Pages Posted: 24 Mar 2022

See all articles by Sarah Robinson

Sarah Robinson

University of California, Santa Barbara (UCSB)

Alisa Tazhitdinova

University of California, Santa Barbara (UCSB)

Date Written: February 15, 2022

Abstract

We study U.S. state tax rules over the past 70 years to shed light on the determinants of U.S. state tax policy, generating three key results. First, we show that long-term tax trends are not consistent with Tiebout sorting and race-to-the-bottom competition models. Second, we document evidence of increasing polarization of tax rates between Democratic and Republican states in the 1970s and from 2000 onward. Third, we use machine learning techniques to show that the timing and magnitude of tax changes are not driven by federal changes, economic needs, state politics, institutional rules, neighbor competition, or demo- graphics. Altogether, these factors explain less than 20% of observed tax variation.

Keywords: state taxes, fiscal federalism, income tax, corporate tax, sales tax, cigarette tax, alcohol tax, gasoline tax, machine learning

JEL Classification: D72, H20, H71, H73, H77

Suggested Citation

Robinson, Sarah and Tazhitdinova, Alisa, What Drives Tax Policy? Political, Institutional and Economic Determinants of State Tax Policy in the Past 70 Years (February 15, 2022). Available at SSRN: https://ssrn.com/abstract=4035979 or http://dx.doi.org/10.2139/ssrn.4035979

Sarah Robinson

University of California, Santa Barbara (UCSB) ( email )

Santa Barbara, CA 93106
United States

HOME PAGE: http://www.s-robinson.com

Alisa Tazhitdinova (Contact Author)

University of California, Santa Barbara (UCSB) ( email )

South Hall 5504
Santa Barbara, CA 93106
United States

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