Do Output Contractions Cause Investment in Fiscal Capacity?

Christian Gillitzer

American Economic Journal: Economic Policy, 2017, vol. 9, issue 2, 189-227

Abstract: This paper shows that an economic slump can induce a government to invest in fiscal capacity. Large negative income shocks stress the revenue-raising capability of narrow tax bases, making an increase in tax base breadth desirable relative to its fixed implementation cost. A broader tax base enables revenue to be raised at lower tax rates, and so lower deadweight loss. The behavior of US state governments during the Great Depression supports the model: states experiencing larger than average negative income shocks were more likely to adopt a retail sales tax than were states experiencing smaller than average income shocks.

JEL-codes: E32 E62 H25 H71 N42 N92 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/pol.20150161
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://www.aeaweb.org/articles?id=10.1257/pol.20150161 (application/pdf)
https://www.aeaweb.org/articles/attachments?retrie ... 5UQlAV1GJSMZNluHXp13 (application/zip)
https://www.aeaweb.org/articles/attachments?retrie ... XxQZ7SPeX6srzJeT4OTU (application/pdf)
https://www.aeaweb.org/articles/attachments?retrie ... OxengYIzRhzZS3X-n_fp (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aejpol:v:9:y:2017:i:2:p:189-227

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Journal: Economic Policy is currently edited by Matthew Shapiro

More articles in American Economic Journal: Economic Policy from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().