Age Demographics and the Tax Mix in US States

Cameron A. Shelton

Public Finance Review, 2022, vol. 50, issue 1, 120-130

Abstract: Countries with higher old-age dependency rates tend to rely less heavily on income taxes and more heavily on consumption taxes. We investigate this relationship in a panel of US states. To address endogeneity in a sub-national context due to migration, we use lagged in-state births to develop a new instrument for old-age dependency which is shown to be strong and relevant to the results. In an unbalanced panel spanning 1979–2013, we do find a negative relationship between old-age dependency ratio and income tax reliance. But, though persistent across specifications, it is not statistically significant under either ordinary least squares or instrumental variables despite strong instruments and a healthy sample size. We speculate as to what underlying mechanism might deliver a correlation that is robust among the Organisation for Economic Co-operation and Development countries but tepid among US states.

Keywords: Old-age dependency; income tax; consumption tax; fertility rate (search for similar items in EconPapers)
JEL-codes: H71 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:50:y:2022:i:1:p:120-130

DOI: 10.1177/10911421221094026

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