Year of Publication

2012

Degree Name

Doctor of Public Administration (DPA)

Document Type

Doctoral Dissertation

College

Graduate School

Department

Public Administration

First Advisor

Dr. Eugenia Toma

Abstract

State and local governments play an important role in financing and delivering public services in the United States. In 2008, state and local governments collected 57 percent of total federal, state, and local revenue (Urban Institute and Brookings Institution, Tax Policy Center, 2009). The decentralization of fiscal responsibility has enabled a high degree of variation in state and local tax structures to emerge. This dissertation presents two empirical studies that extend the positive literature on state and local tax policy.

The extant literature contains evidence of a direct relationship between voter ideology and state and local tax progressivity. However, the measures of voter ideology that were used either did not capture differences in the intensity of voter liberalism across states, did not vary over time, or were beset with other limitations. This study uses the measure of average voter liberalism developed by Berry et al (1998). I find that average voter liberalism is significantly and positively-related to progressivity. However, the effect is small in magnitude. The ethnic congruence between the poor and the non-poor is positively-related to progressivity and the effects are economically significant. The degree of tension between ethnic groups, measured with an index of ethnic residential segregation, is significantly and inversely-related to progressivity. Both variables are statistically significant even with average voter liberalism held constant. It is possible that the ethnic demographic context reflects aspects of voters’ redistributive preferences that are not captured by measures of ideology.

Researchers have found relationships between states’ tax exporting capacities and the tax structures they adopt. Chapter 4 is the first study to examine the relationship between state tax exporting capacities and the business sales taxes. I find that the effective sales tax rate that governments impose on business purchases is not significantly influenced by a state’s capacity to export business taxes. It is, however, significantly and positively affected by a state’s ability to export taxes on households through the deductibility of state and local taxes under the federal income tax. A decrease in this offset is predicted to lead to an increase in the effective business sales tax rate, ceteris paribus.