Open AccessPoliticians Avoid Tax Increases Around Elections
Author(s) -
Andrew C. Chang,
Linda R. Cohen,
Amihai Glazer,
Urbashee Paul
Publication year - 2021
Publication title -
finance and economics discussion series
Language(s) - English
Resource type - Journals
eISSN - 2767-3898
pISSN - 1936-2854
DOI - 10.17016/feds.2021.004
Subject(s) - salience (neuroscience) , economics , indirect tax , legislature , tax reform , direct tax , tax deferral , politics , tax rate , tax avoidance , state income tax , ad valorem tax , value added tax , public economics , monetary economics , political science , law , gross income , psychology , cognitive psychology
We use new annual data on gasoline taxes and corporate income taxes from U.S. states to analyze whether politicians avoid tax increases in election years. These data contain 3 useful attributes: (1) when state politicians enact tax laws, (2) when state politicians implement tax laws on consumers and firms, and (3) the size of tax changes. Using a pre-analysis research plan that includes regressions of tax rate changes and tax enactment years on time-to-gubernatorial election year indicators, we find that elections decrease the probability of politicians enacting increases in taxes and reduce the size of implemented tax changes relative to non-election years. We find some evidence that politicians are most likely to enact tax increases right after an election. These election effects are stronger for gasoline taxes than for corporate income taxes and depend on no other political, demographic, or macroeconomic conditions. Supplemental analysis supports political salience over legislative effort in generating this difference in electoral effects.