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  5. The Introduction of the Income Tax, Fiscal Capacity, and Migration: Evidence from U.S. States

The Introduction of the Income Tax, Fiscal Capacity, and Migration: Evidence from U.S. States

  • Traviss Cassidy
  • Mark Dincecco
  • Ugo Antonio Troiano
American Economic Journal: Economic Policy (Forthcoming)

Abstract

We evaluate how fiscal capacity and migration respond to the introduction of the individual income tax, drawing on new panel data on U.S. states from 1900 to 2010. We find that states that introduced the income tax experienced a 12 percent increase in total revenue per capita in the near term, a 15 percent increase in the mediumterm, and a 17 percent increase in the long term. However, the introduction of the income tax did not significantly change the absolute level of revenue over the long term, at least for post-World War II adopters. To explain this difference in the per capita and absolute results, we show that the introduction of the income tax induced significant outmigration to non-income tax states by middle- and high-earning households.

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