The Contribution of Tax Systems and Political and Economic Difference for the Fiscal Condition of Each State in the United States
Many governments in the world struggle with realizing and keeping a good fiscal position. This study tries to determine the factors which contribute to the ideal fiscal condition by focusing on the tax systems of 50 states in the United States and the District of Columbia. The regressions use a fixed effect model and include fiscal condition indicators as dependent variables, tax revenue variables for each tax sources as independent variables, and economic/political control variables.The results show that both operating ratio (total revenue / total expenditure) and surplus (deficit) per capita work very well as indicators for fiscal condition. Furthermore, corporate tax revenue has positive relationship with fiscal condition, while property tax revenue has negative correlation.In addition, the regressions reveal that Republican control in executive and legislative branches seems to affect states’ budgets positively. On the other hand, states with top-10 cities tend to be in worse fiscal situations. Finally, although increased GDP and average income are good for fiscal conditions, relying on information and finance industries might cause negative effects on states’ budgets. Rather, the regressions imply that states should focus on trade industry more.
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