Tax competition among US states: Racing to the bottom or riding on a seesaw?

• 成果类型: Article
• 署名作者: Chirinko, Robert S.; Wilson, Daniel J.
• 署名单位: University of Illinois System; University of Illinois Chicago; University of Illinois Chicago Hospital; Leibniz Association; Ifo Institut; University of Illinois System; University of Illinois Chicago; University of Illinois Chicago Hospital; Federal Reserve System - USA; Federal Reserve Bank - San Francisco
• 刊物名称: JOURNAL OF PUBLIC ECONOMICS
• ISSN/ISSBN: 0047-2727
• DOI: 10.1016/j.jpubeco.2017.10.001
• 发表日期: 2017
• 页码: 147-163
• 关键词: Tax competition; state taxation; Reaction functions; capital taxation

摘要

Dramatic declines in capital tax rates among U.S. states and European countries have been linked by many commentators to tax competition, an inevitable race to the bottom, and underprovision of local public goods. This paper analyzes the reaction of capital tax policy in a given U.S. state to changes in capital tax policy by other states. Our study is undertaken with a novel panel data set covering the 48 contiguous U.S. states for the period 1965 to 2006 and is guided by the theory of strategic tax competition. The latter suggests that capital tax policy is a function of foreign (out-of-state) tax policy, preferences for government services, and home state and foreign state economic and demographic conditions. The slope of the reaction function - the equilibrium response of home state to foreign state tax policy is negative, contrary to casual evidence and many prior empirical studies of fiscal reaction functions. This result, which stands in contrast to most published findings, is due to two critical elements that allow for delayed responses to foreign tax changes and responses to aggregate shocks. Omitting either of these elements leads to a misspecified model and a positively sloped reaction function. Our results suggest that the secular decline in capital tax rates, at least among U.S. states, reflects synchronous responses among states to common shocks rather than competitive responses to foreign state tax policy. While striking given prior empirical findings, these results are fully consistent with the implications of the theoretical model developed in this paper and presented elsewhere in the literature. Rather than racing to the bottom, our findings suggest that states are riding on a seesaw. Consequently, tax competition may lead to an increase in the provision of local public goods, and policies aimed at restricting tax competition to stem the tide of declining capital taxation are likely to be ineffective.