Ugo Troiano Releases Study, Do Taxes Increase Economic Inequality? A Comparative Study Based on the State Personal Income Tax
Ugo Troiano recently published the National Bureau of Economic Research (NBER) working paper entitled, “Do Taxes Increase Economic Inequality? A Comparative Study Based on the State Personal Income Tax.” Focusing on the relationship between state income tax policies and the distribution of income, the results of this paper find that income inequality is raised after all the state income tax policy events studied in the paper.
I present new quasi-experimental evidence on the relationship between tax policies and the distribution of income. I focus on the twentieth century United States, and on the personal income tax, since its inception. I study three major policy events that, as the existing literature shows, significantly raised the revenues from the income tax: the introduction of the state personal income tax, the introduction of tax withholding together with third-party reporting, and the intergovernmental agreements between the federal and state governments to coordinate tax auditing efforts. All the three policies were introduced in a staggered fashion and increased tax revenues, but had different fiscal consequences. Despite this, I find that income inequality raised after all the tax policy events. The result is robust to different measures of economic inequality and econometric specifications.