Do Taxes Affect Pre-Tax Income Inequality? Evidence from 100 Years of U.S. State Tax Policies.

We study how U.S. state personal and corporate income taxes have affected pre-tax income inequality (income shares and top incomes) during the last century. The long panel nature of our data, from 1917 to 2018, allows us to study the effect of tax adoptions, tax cancellations, and tax changes, and to assess both immediate and long-term relationships. With event study and synthetic control designs, we generally find no statistically significant relationship between tax measures and inequality. Some of our point estimates, and also two-way fixed effects analysis, suggest that higher income taxes may reduce top incomes and income shares.