Citation:

A. Désiré Adom. "Does State Income Tax Matter in the United States? A Cross- Sectional Analysis of 50 States and the District of Columbia" International Research Journal of Economics and Management Studies, Vol. 3, No. 5, pp. 318-322, 2024.

Abstract:

Taxation-related themes never cease to draw interest from economists, decision-makers and other stakeholders involved in and with public policy, public administration, and academia. This paper considers a cross-section of 50 states ─ including nine or so states with no income tax ─ and the District of Columbia to investigate whether state income tax matters. Using an heteroskedasticity-consistent estimation method, it is found that not only it does, but it penalizes income growth on a per capita basis by about 9.2 percent. This outcome provides further empirical legitimacy to anti-state income tax proponents. On the other hand, the absence of state income tax does not preclude sound public finance choices or outcomes featuring budget surpluses. Acknowledging that the debate pertaining to changes in taxation legislation can easily slip into the realm of normative economics, the notion of statewide income tax elimination need not be an economic taboo any longer. It should at least be considered for its potential benefits under the prism of a proactive and balancing mechanism ─ including, for instance, an agreed-upon range for a statewide Gini-inspired index ─ to maintain and promote at the same time social equity and a fair distribution of growth dividends.

References:

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Keywords:

Income tax, State, Cross-section.