Pablo Fajgelbaum, Eduardo Morales, Juan Carlos Suarez Serrato, and I have a new paper on the impact of state taxes on the US economy. Here is the abstract:
We study state taxes as a potential source of spatial misallocation in the United States. We build a spatial general-equilibrium model in which the distribution of workers, firms, and trade flows across states responds to state taxes and public-service provision. We estimate firm and worker mobility elasticities and preferences for public services using data on the distribution of economic activity and state taxes from 1980 to 2010. A revenue-neutral tax harmonization leads to aggregate real-GDP and welfare gains of 0.7%. Tax cuts by individual states lower own-state tax revenues and economic activity, and generate cross-state spillovers depending on trade linkages.
Poterba on interesting questions in macroeconomics today:
There are just so many exciting topics in macro today. Why are global interest rates so low? What is happening in the eurozone? How do we think about long-term fiscal policy and sustainability in the United States? Why is growth in the U.S. economy slower than it has been? How does recent work on long-term inequality and the relationship between rates of return and growth rates connect to the changing distribution of resources in the United States? I hope I succeeded at least a bit in conveying some of my excitement about these questions.
Poterba on the future of public finance
I tell incoming graduate students that in the field of public economics, the questions we confront are always fresh because economies go through periods of evolving policy mix, but our underlying analytical tools are remarkably stable. When public finance economists talk about the optimal design of a tax system, it is worth remembering that Adam Smith offered four maxims for a good tax system. One of them is that the tax system should impose the smallest possible burden beyond the revenue that is collected from the taxpayer. It’s a very simple statement that the optimal tax code should minimize deadweight burden, and it remains a guiding principle that animates research to this day. The underlying trade-offs in public economics, between equity and efficiency and between raising revenue and creating distortions, have been with us a long time, and they are likely to remain the bedrock of the field.
Full interview is here