Academic journal article Political Research Quarterly

Fiscal Policy and Economic Inequality in the U.S. States: Taxing and Spending from 1976 to 2006

Academic journal article Political Research Quarterly

Fiscal Policy and Economic Inequality in the U.S. States: Taxing and Spending from 1976 to 2006

Article excerpt

Introduction

Growing economic inequality could be one of the most pressing problems facing American society (e.g., American Political Science Association Task Force 2004). Although periods of inequality have long been part of American history, the recent growth in economic inequality in the United States is unique (e.g., Bartels 2008; Hacker and Pierson 2010; Piketty and Saez 2003). While the recent growth in income inequality is largely due to the exponential growth of incomes among the top 1 percent (e.g., Piketty and Saez 2003), many Americans struggle economically. Over the past thirty years, incomes have remained relatively stagnant for many, others live in abject poverty, and a growing number of citizens subsist on the verge of poverty-recently deemed the "near poor" by the Census Bureau (DeParle, Gebolff, and Tavernise 2011; Heggeness and Hokayem 2013).

Scholarship examining U.S. policy at the national level has found a limited response to these recent trends of rising inequality and widespread poverty (e.g., Hacker 2004; Howard 1997; Mettler and Milstein 2002). This is perhaps not surprising, given the general attitudes toward welfare in the United States (e.g., Berinsky 2002; Gilens 1999) as well as scholarship finding biased political responsiveness in favor of the wealthy at the national level (e.g., Bartels 2008; Ellis 2012; Gilens 2005, 2012; Hacker and Pierson 2010; Hayes 2013; Kelly 2009; Kelly and Witko 2012; Skocpol and Jacobs 2005). Moreover, many studies find biased responsiveness at the subnational level as well (e.g., Flavin 2012; Hill and Leighley 1992; Rigby and Wright 2011, 2013). There are, however, many layers of government at which policymakers can respond to problems such as economic inequality in a federal system. In certain cases, the national government provides incentives for states to redistribute incomes (e.g., Peterson 1995), and states may have become more active in influencing economic inequality since the Republican takeover of Congress in 1994 and devolution that has followed (Kelly and Witko 2012; Winston 2002). This study moves beyond previous research and examines the policy mechanisms that link political decisions with levels of inequality. We examine the extent to which state governments (through fiscal policy measures) influence economic inequality-by not only examining state-level inequality but also the average family incomes of various economic groups. We find states (through the use of fiscal policy tools) are able to affect economic inequality and can significantly influence the incomes of different economic groups. Most significantly, there are differential effects depending on how different fiscal tools are used. The results show that both spending (unemployment compensation and cash assistance) and tax revenue (corporate tax revenue) are found to reduce state-level inequality. We also find unemployment compensation to positively benefit the poorest (bottom 10th percentile), while the inheritance tax helps most income groups. Corporate and income tax revenue is associated with higher middle- and upper-class incomes, whereas sales tax revenue benefits the wealthy. Higher property tax revenue is associated with decreased income for most groups. Thus, our results show that state fiscal policies can have a real impact on reducing inequality as well as aiding the incomes of the poorest citizens.

The rest of this paper is organized into five main sections. The first section "The Politics of State Taxing, Spending, and Income Inequality" reviews the literature on economic inequality and the role of subnational governments in influencing social welfare policy with an eye toward the common pressures they face in this policymaking arena. The second section "Expectations and Hypotheses" discusses our hypotheses in relation to the full effects of state fiscal policymaking-taxation and spending-on the level of inequality. In the third section "Data, Model Estimation, and Findings," we discuss our data and findings from our two-part statistical analysis. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.