What Drives Tax Policy? Political, Institutional and Economic Determinants of State Tax Policy

73 Pages Posted: 24 Mar 2022 Last revised: 6 Sep 2023

See all articles by Sarah Robinson

Sarah Robinson

Claremont McKenna College

Alisa Tazhitdinova

University of California, Santa Barbara (UCSB)

Multiple version iconThere are 2 versions of this paper

Date Written: February 15, 2022

Abstract

We collect detailed data on U.S. state personal income, corporate, sales, cigarette, gasoline, and alcohol taxes over the past 70 years to shed light on the determinants of state tax policies. We provide a comprehensive summary of how tax rates have changed over time, within and across states. We then use permutation analysis, variance decomposition, and machine learning techniques to show that the timing and magnitude of tax rate changes are not driven by economic needs, state politics, institutional rules, neighbor competition, or demographics. 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 (February 15, 2022). Available at SSRN: https://ssrn.com/abstract=4035979 or http://dx.doi.org/10.2139/ssrn.4035979

Sarah Robinson

Claremont McKenna College ( email )

Claremont, CA 91711
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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