Progressive State Taxes and Welfare

Kara D. Smith and Bryan Shone

Poverty & Public Policy, 2016, vol. 8, issue 4, 430-437

Abstract: Classic fiscal federalism theory dictates that income redistribution should be undertaken at the federal level. However, this maxim is frequently violated at the state level when states employ progressive tax systems to support services such as health care, affordable housing, and welfare. Relatively little research has explored the relationship between progressive tax systems and the potential redistributive benefits. Our goal is to investigate how relatively progressive tax systems are associated with the number of welfare recipients in order to gain a better understanding of the redistributive components in the tax and expenditure sides of the budget. Our article explores this relationship using a panel of data for 50 states, spanning 13 years (1990–2002). The data include welfare recipients, state‐specific information on Temporary Assistance for Needy Families programs (and Aid to Families with Dependent Children for years prior to 1997), multiple measures of tax progressivity, and demographic variables. We find that there is a positive relationship between the relative progressivity of a state's tax portfolio and the number of welfare recipients, which suggests that state tax structures and spending portfolios might be used as complementary tools to redistribute income. This result, however, is sensitive to the specification of progressivity.

Date: 2016
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https://doi.org/10.1002/pop4.162

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Persistent link: https://EconPapers.repec.org/RePEc:wly:povpop:v:8:y:2016:i:4:p:430-437

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