Democrats, republicans, and taxes: Evidence that political parties matter

Abstract

I estimate the influence of political parties on state Tax Burdens over a forty-year period . Holding constant a large number of state and voter characteristic variables, I find that: (i) Tax Burdens are higher when Democrats control the state legislature compared to when Republicans are in control. (ii) The political party of the governor has little effect after controlling for partisan influences in the state legislature. I explain how both findings are consistent with median voter theory. My results suggest that after five years of Democratic control of the legislature, state government would be approximately 3 to 5 percent larger than if Republicans controlled the legislature during that same period, with the better specifications producing estimates in the higher end of this range.

The size and scope of government in the US states: does party ideology matter?

“…Reed (2006) finds that tax burdens were higher when Democrats controlled the state legislature compared to when Republicans were in control but that the political party of the governor had little effect. In a similar vein, the results by Besley and Case (2003) show that when Democrats controlled the House, states had higher taxes and expenditures.…”

“…Several studies have shown that party ideology influences economic policy-making in the United States. At the federal level and across the US states leftwing / Democrat governments seem to have pursued more expansionary fiscal policies than rightwing / Republican governments by increasing public expenditures and tax burdens (e.g., Alt and Lowry 1994;Blomberg and Hess 2003;Reed 2006;Rose 2006;Chang et al 2009;Broz 2011;Pickering and Rockey 2013). The result of ideology-induced fiscal policies across the US states is not only meaningful because states have the power to choose different policies and institutions.…”

Consumption tax competition among governments: Evidence from the United States

“…We hypothesize that Republican states prefer a smaller size of the public sector and, therefore, are less likely to set high tax rates than Democratic states (cf. Reed 2006). The unemployment rate is used to measure the impact of the business cycle on tax setting behavior of governments.…”

Pick Your Poison: Do Politicians Regulate When They Can’t Spend?

“…We begin by identifying a strong effect of political parties on state policy outcomes. Previous research has found either little effect of unified party control (Gilligan and Matsusaka, 1995;Garand, 1988) or that Democratic control tends to increase taxes and spending (Alt and Lowry, 1994;Reed, 2006). In particular, Reed (2006) estimates that state government is about three to five percent larger after five years of Democratic control of the legislature.…”

“…Previous research has found either little effect of unified party control (Gilligan and Matsusaka, 1995;Garand, 1988) or that Democratic control tends to increase taxes and spending (Alt and Lowry, 1994;Reed, 2006). In particular, Reed (2006) estimates that state government is about three to five percent larger after five years of Democratic control of the legislature. We adopt the basic identification strategy of Reed (2006), but unlike his study which focuses on just one dependent variable, "Tax Burden" (the ratio of state and local tax revenues to state personal income) our study looks at five state revenue policies and five expenditure policies.…”