The Effect of National Revenues on Sub-National Revenues: Evidence from the U.S.

Abstract

I present for the first time an empirical examination of the impact of total federal revenues on total sub-national proceeds. Prior theory recognizes that the effects of national revenues on sub-national revenue-raising are ambiguous. Earlier studies have focused on vertical relationships between particular tax bases, such as the impact of federal commodity taxes on state or provincial commodity tax rates. Using a panel of data from U.S. states over the recent decade, I find an economically and statistically significant degree of federal crowding in of state revenues. I note the potential implications of these results for fiscal federalism theory and legal controversies over federal conditional spending.For copyright reasons, only the abstract of the full article is freely available online. This brief web appendix provides results for 2SLS robustness checks omitted from the published edition. Interested readers may contact the author for the full article.