Decentralized Income Redistribution Reconsidered

William Johnson

Economic Inquiry, 1991, vol. 29, issue 1, 69-78

Abstract: In theory, a state could redistribute income at a lower cost to its taxpayers than if the national government handled it. Part of the cost is exported out of state when federal tax revenues generated by the state fall as money incomes are reduced by additional redistribution. Simulations combining labor supply and migration responses show that, for some reasonable parameter values, enough of the cost is exported so that states do face lower costs of redistribution. Hence, the federal tax system provides at least a partial offset to the well-known externalities generated by local redistribution. Copyright 1991 by Oxford University Press.

Date: 1991
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