School Finance Reform and the Progressivity of State Taxes (WP-10-04)
Nathan Anderson and Therese McGuire
One of the most important exogenous shocks to state government finances over the last 40 years has been court-ordered school finance reform (SFR). Previous studies have found that state expenditures on education became more redistributive in states with SFR. Theory would seem to indicate that this shock to the distribution of state expenditures across income groups should lead to a change in the redistributive nature of state tax systems. The authors investigate whether states subject to SFR altered their tax systems to be more or less progressive. They find that SFR is associated with an increase in the progressivity of individual income taxes but no change in the progressivity of general sales taxes.