A state personal income tax simulation model

Abstract

A simple econometric model of a state personal income tax is presented. The model is designed for economies subject to rapid population increase by means of a double log specification of an average tax schedule. Various tests are presented to validate the model. It is then incorporated into a full econometric model and the revenue and general equilibrium effects of two types of tax cut are considered. It is found that changes in state personal income tax rate schedules and deduction provisions have significant general equilibrium effects on open economies and these result in substantial induced revenue impacts.