The impact of general revenue sharing incentives on state tax effort
Zaricznyj, Andrea M.
Stein, Robert M.
Master of Arts
The State and Local Fiscal Assistance Act of 1972 authorized the distribution of general revenue sharing monies on the basis of formulas which provided incentives for states to increase their total tax effort and the progressivity of their tax structures. This examination of the impact of general revenue sharing on state and local government tax structures serves as a test of the federal government's ability to stimulate state tax reform through the distribution of federal aid. An interrupted time series analysis of various state taxes from 1965 to 1979 reveals a significant change in the tax structures of most states after 1972 but not in the expected direction. When other determinants of state tax structures are controlled for the data suggest that general revenue sharing funds were substituted for tax dollars in order to postpone tax increases. While the formula incentives generally helped maintain tax efforts, they were not strong enough to encourage state officials to adopt more progressive tax structures.