This paper reviews federal individual income tax changes and related developments in empirical research over the past 25 years. Tax policy generally moved, with exceptions, in the direction of a broader base and lower rates, while increasingly administering anti-poverty and health policy. Improvements in the accessibility of high-quality data and empirical methods led to better identified estimates of behavioral responses. Estimated responses to tax policy were often smaller than found previously and tended to be concentrated on margins and among populations that were more adjustable. Tax noncompliance responses were better identified, with the estimated effects of enforcement actions generally sizeable.
Abstract Do dedicated local sales taxes (D‐LSTs) supplement or supplant general‐purpose spending? The study applies heterogeneity‐robust staggered difference‐in‐differences estimator of Callaway and Sant'Anna (C&S, 2021) and interactive fixed effects (IFE) estimation on a panel of Texas cities. The C&S aggregate average treatment effect on General Fund expenditures is positive. The IFE estimator, which relaxes the parallel trends assumption, confirms that all D‐LST types produce positive effects on the General Fund, with property tax relief and economic development designations generating the largest responses. These patterns support the supplementing hypothesis: voter‐approved earmarks do not reduce operational expenditures as classical fungibility theory predicts.
Gender budgeting (GB) is a social innovation that integrates gender awareness into budgetary decision-making. This study builds on existing well-being frameworks to conceptualize GB as an undervalued yet powerful tool for achieving human development across social groups. Using the event study method to leverage the differential timing of GB adoption across 46 countries between 2000 and 2022, we compare its impact on the human development of women and men. The results reveal that GB not only positively impacts women but also benefits men, suggesting that promoting gender equality does not come at the expense of any group's well-being.
The public economy literature shows that dynamic effects of public expenditure vary across programs, giving governments incentives to allocate spending with precision. However, this may be difficult in multi-level governance, where centrally funded expenditure is implemented locally. While largely ignored in the dynamic effects literature, this problem is central to fiscal federalism research. We draw on these insights to argue that it is difficult for central government to control expenditure at the local level. Empirically, we study intergovernmental grants in Denmark and find that local governments spend only part of the funds as intended. We discuss implications for future research.
This paper summarizes the significant changes to the taxation of business income in the United States over the last 25 years and how the resulting policy variation has helped inform research on business taxation. The survey of research on the topic covers investment incentives, international taxation, corporate financial policy, issues with pass-through businesses, compliance, enforcement, and other related topics.
Fiscal governance rules are viewed as prudent tools that promote balanced budgets, lower tax burdens, and ensure modest use of long-term debt. However, these rules can create incentives that inadvertently worsen the government's long-term financial position. Focusing on unfunded retiree benefits and long-term debt, this study finds that states subject to political balanced-budget requirements report higher unfunded pension benefit obligations and higher debt burdens. In contrast, anti-deficit provisions and limits on taxing authority are associated with lower unfunded retirement benefits. Findings suggest fiscal rules can worsen a government's long-term financial position in ways not visible in the operating budget.
The COVID-19 pandemic exposed critical vulnerabilities in U.S. transportation infrastructure, resulting in widespread project delays, suspensions, and cancellations. In response, borrowers turned to refinancing to mitigate revenue shortfalls and benefit from historically low interest rates. This paper analyzes the surge in refinancing activity between 2020 and 2022, focusing on transportation infrastructure projects that secured more favorable loan terms during this period of disruption. It evaluates refinancing decisions using established public finance criteria to assess fiscal and policy implications. The findings illuminate the incentives shaping borrower and lender behavior and consider refinancing as a strategic fiscal instrument under economic stress.
This study explores how community resilience shapes local fiscal health by integrating the Baseline Resilience Indicators for Communities (BRIC) into an open-systems framework of public finance. Using financial data from U.S. counties for fiscal years 2016 and 2021, we examined whether the six BRIC domains explain variation in operating performance, fiscal reserves, and debt levels. We found that economic and social resilience were positively associated with higher fiscal reserves, while housing infrastructure and civic engagement reduced them. This challenges a monotonic relationship between community resilience and county fiscal health, revealing trade-off dynamics and the context-dependent nature underlying it.
This study employs a panel threshold regression to examine how own-source revenues and unconditional grants affect internal expenditures of Korean local governments. Guided by mental accounting theory, we argue that revenue sources create distinct "accounts," shaping expenditure choices. Results reveal two thresholds (0.310% and 0.401%) beyond which the effect of own-source revenues on internal spending declines sharply, while the grant effect remains stable. This loss-averse pattern suggests that excessive reliance on unconditional transfers can weaken fiscal autonomy, highlighting the need to redesign intergovernmental grants to mitigate inefficiencies.
Debt monitoring rules are a type of fiscal rule that allows states to proactively oversee their local government borrowing. This study examines how these rules impact local borrowing costs using a mixed-methods approach. It reviews state codes to classify debt monitoring features and creates a rigor index to measure state involvement. The study then assesses how variation in state involvement influences borrowing costs. The results indicate that debt monitoring rules involving early and substantive state involvement, particularly those that facilitate timely information exchange and state engagement, are associated with lower borrowing costs, while passive monitoring has little effect.
Housing affordability challenges have led governments to adopt selective taxes to curb speculative demand and raise revenue. We study two such taxes in New South Wales, Australia, targeting foreign residential property buyers: the foreign purchaser duty (FPD), a one-time transaction tax, and the foreign land duty surcharge (FLDS), an annual land tax. Using a variety of empirical approaches, we show that doubling the FPD rate reduced foreign purchases but cut FPD revenue by nearly 150%. In contrast, a higher FLDS rate boosted revenues without affecting ownership or sales. Policy makers thus should specify policy objectives and select tax instruments accordingly.
Status quo bias often impacts decisions about private goods and is hypothesized to influence voter choice. This paper offers a clean, direct, real-world test of status quo bias's effect on voter support for school spending. We take advantage of a unique Minnesota rule that requires ballot language to disclose and distinguish between new and renewed property tax impacts of referendums. Using a novel dataset of 922 Minnesota school referendums from 2008 to 2023, we find that referendums that renew existing taxes receive 13.0-15.2 percentage points more support than referendums proposing new taxes, despite equivalent financial implications. This suggests that roughly 15% of voters are swayed by the status quo and rely on this simple cue instead of careful cost and benefit assessment. Heterogeneity analysis suggests that status quo bias is substantially weaker in high income or more educated districts.
We examine how closed-system state financial monitoring can misrepresent local fiscal health by ignoring broader legal and regulatory contexts. Using Texas as a case study, we show that school districts financing debt with renewable energy revenues are penalized under the state's monitoring system due to higher debt-per-pupil levels despite responding rationally to state incentives. This case illustrates a form of financial myopia, where rational financial behaviors are penalized under a monitoring system. We provide causal evidence of this dynamic and argue for an open-systems approach to fiscal monitoring that recognizes the legal and fiscal environments shaping local financial decisions.
Recently, several countries have initiated reforms on their VAT regimes to include financial services, following the emergence of various methods for taxing both implicit and explicit fees. This article provides a theoretical and empirical analysis of these reforms. While exempting financial services from VAT, or taxing only Explicit Fees and Commissions (EFCs), tends to generate excessive income and private consumption, the comprehensive taxation of both implicit and explicit fees within Financial and Insurance Services (FIS) leads to more sustainable outcomes. Specifically, this approach enhances the price visibility of public services, thereby fostering a reduction in public expenditure.
I survey recent research on subnational income tax policy, arguing that a defining feature is geography. Geographic boundaries limit the power of subnational governments to tax people and activities. The article discusses where income should be taxed and the effects of these tax rules on the interjurisdictional mobility of people and jobs. I examine how mobility can heighten tax competition and limit the ability of subnational governments to engage in redistribution. I discuss how telework will influence the income tax by decoupling the locations of the employee and employer. Important areas for future research for the coming decades are highlighted.
This study empirically examines the inverted U-shaped relationship between natural disaster experiences and the government reserve fund rate using panel data from 31 Chinese provinces between 2015 and 2021. It identifies the threshold at which provincial governments learn from their past experience. This pattern may originate from the institutional rigidity in China's emergency finance system and shifting intergovernmental fiscal responsibilities via moral hazard. Our analysis uncovers this complex relationship by examining the institutional determinants of provincial budgetary decisions, providing an empirical basis for optimizing emergency fiscal systems and designing evidence-based fiscal policies.
State-administered pension plans report paying roughly $20 billion each year in fees to external asset managers, much of it for high-cost, high-risk "alternative" assets such as private equity and hedge funds. These outcomes involve trillions in pension investments that affect the retirement security of millions of public sector workers and the budgets of every U.S. state. Yet, a consistent finding in the finance literature is that these managers tend to underperform broad market indices after accounting for fees. Politically appointed members of pension boards may nonetheless rationally favor these strategies, given the short-term political incentives of those who appoint them. Drawing on the "political embeddedness" framework, this study assesses whether and how the share of politically appointed members on pension boards influences asset allocation and fees. Using panel data for 66 state-administered plans from 2019-2022, combined with fee data from annual reports, we estimate plan-level fixed effects models to examine investments in alternative assets and fees paid by pension systems. We find that, among boards with statutory authority over asset allocation, adding one political appointee (approximate to 10 percentage points) is associated with a 1.2 percentage point increase in alternative asset allocations and a 5-7 percent increase in total fees, even after adjusting for asset composition. These results align with the short-term incentives of political appointees and underscore how board governance shapes investment outcomes. The prevalence of missing fee data-especially for alternative assets-further highlights the need for greater transparency in fee reporting.
The review of sales tax exemptions represents a significant undertaking for states across the United States. This analysis introduces a set of tax policy criteria to evaluate these exemptions in response to prevalent stakeholder considerations. We implement these criteria in the context of North Carolina's exemption of unprepared food from the sales tax base, outlining a specific methodology for each. In addition, we leverage a distinctive feature of North Carolina's tax revenue data to generate projections for other states using a machine learning approach. By repealing their food sales tax exemptions, our calculations suggest that states could increase revenue by approximately 12 percent or, if revenue neutrality were pursued, decrease their general sales tax rate by an average of 0.62 percentage points. These results align closely with our North Carolina analysis. We also find that repealing the food exemption would decrease revenue volatility in North Carolina, and, under a revenue-neutral approach, result in a progressive change in tax burdens for the lowest-income households once accounting for government food assistance. One notable downside to repealing food exemptions is the potential revenue loss for local governments that currently tax food-a challenge that could be mitigated through intergovernmental transfers.
This study examines how structural features shape participation in private equity across U.S. state and local public pension systems. Using panel data from the Boston College Public Plans Database the analysis introduces the concept of structural asymmetries to explain persistent differences in access to illiquid investment strategies. Descriptive evidence shows that private equity participation expanded unevenly over time, with larger systems increasing exposure more rapidly after the Great Recession. Fixed-effects models indicate that fund size and liquidity capacity are the most consistent determinants of participation, while fiduciary discipline and actuarial assumptions exhibit limited explanatory power once structural constraints are considered.
American subnational governments commonly require voters to approve bond proposals, reflecting historical concerns about legislative shortsightedness. Yet voters need an understanding of how bond financing works to make choices consistent with preferences. Existing literature makes it unclear whether voters have such knowledge. Using original survey data, we find only about half of voters can identify how bonds are financed. An experiment shows that simple cues can change voter preferences for using bonds or taxes. These findings cast doubt on whether bond elections reveal true preferences and suggest there may be better means to prevent poor bond decisions.
