Taxes, transfers, and state economic differences

Israel Malkin and Daniel Wilson

FRBSF Economic Letter, 2013, issue dec2

Abstract: Taxes collected by the U.S. government are paid out through transfers that promote economic equity among states. This system redistributes funds between richer and poorer states over the long run and helps stabilize states hit by temporary economic shocks. Surprisingly, little if any of this redistribution and stabilization comes from transfer payments through federal programs and services. Rather, differences across states in federal tax payments drive these effects. Research suggests a similar system of taxes and transfers in the European Union could have reduced recent economic divergence among member states.

Keywords: Taxation; Taxation - Europe (search for similar items in EconPapers)
Date: 2013
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