Can Redistributive State Taxes Reduce Inequality?

By Andrew Leigh

Do income taxes levied at a state or regional level affect the after-tax distribution of income? Or do workers merely move between regions, causing pre-tax wages to adjust? This question is relevant both in across states in the United States, and across countries within the European Union.

Leigh finds that re-distributive taxes do not appear to affect interstate migration or total state personal income. From a political economy perspective, He also find some evidence that more inequality leads states to implement more re-distributive taxes, which may help explain why earlier studies observed a positive relationship between redistribution and inequality. The relationship between reduced inequality and re-distributive taxation is very small.