The incidence of state and local taxes under fiscal change : methodology

Sets out the initial phase of a project to document potential distributional consequences of recent changes in state and local fiscal setting for California, Kansas, and New Jersey. This Note discusses methods and assumptions for the tax incidence segment of the study, and the state settings in which subsequent analysis will take place. Methods and assumptions used in previous studies of state and local tax incidence are discussed and contrasted to methods developed for this study. The incidence of state and local taxes is the focus of considerable debate among economists, with much of the debate centering on property taxes. Since property tax receipts provide a significant fraction of state and local taxes, a careful review of alternative strategies for allocating property taxes is given, and an empirical methodology developed that is consistent with the views of Harberger, McLure, and Mieszkowski. Allocation schemes for other major state and local taxes are also discussed.