Broadening the State: Policy Responses to the Introduction of the Income Tax

Do Taxes Increase Economic Inequality? A Comparative Study Based on the State Personal Income Tax

“…Therefore, it is unlikely that there is a policy systematically correlated with the adoption of the income tax at the state level and that could bias the results. To further corroborate this point, Cassidy, Dincecco and Troiano (2017) consider for a number of states (the ones for which data could be collected) how close the legislature vote that introduced the state income tax was, and show that the revenue increase following the income tax is not too different in states where the vote was close from those where the vote was not close.…”

“…First, for the introduction of the income tax, Penniman (1980) verified institutionally that the reasons were largely idiosyncratic and political, and that states had other ways to raise revenues. Cassidy, Dincecco and Troiano (2017) conduct an additional robustness check. They look at how close the vote to introduce the income tax was, and they split the sample in places where the vote was close, and places where the vote was not close.…”

“…(3) the intergovernmental agreement between the federal and the state governments for coor-dinating auditing practices. The fiscal consequences of these reforms have been analyzed by three recent studies: Cassidy, Dincecco and Troiano (2017), Dusek and Bagchi (2017), Troiano (2017), respectively. All of the studies find that the state revenues from personal income tax increased as a result of the policies.…”

“…The introduction of the income tax was also accompanied by changes in other part of the budget, such as expenditures in education, and even increase in educational outcomes, such as the number of public colleges in a given state (Cassidy, Dincecco and Troiano, 2017).…”

“…"3 Empirical StrategyIn this section, the empirical strategy is outlined. FollowingCassidy, Dincecco and Troiano (2017),Dusek and Bagchi (2017),Troiano (2017), I implement a difference-in-differences approach based on the staggered introduction of the tax reforms. My aforementioned contribution is analyzing quasi-experimentally the effect of tax policies on the distribution of income.…”