| In this dissertation, I analyze the impact of federal tax policy on state tax structure, which involves modeling aspects of vertical tax competition, tax structure models, federalism, and interest group theory. The question of federal influence on state tax structure is important to answer because of the federal structure of the United States government.;Two different approaches are developed to analyze the impact of federal tax policy on state tax structure. The first is an optimal tax approach that analyzes the efficiency aspects of this impact. The second approach uses a model of intergovernmental political competition where each level of government chooses an amount of public good to provide. From these approaches, three results arose: First, an increase in federal income taxation caused the states to shift from income taxation to sales taxation. Second, if a state initially relies more on the sales tax than the income tax, the effect of a federal tax policy change is diminished. Third, if there is strong interest group resistance to sales taxation within the state, the effect of a federal tax policy change is diminished.;In testing the theory, a panel dataset was created using states with an income tax and a sales tax over the period 1985--1995. The three hypotheses were tested and the results showed strong support for the theory. As a proxy for interest group resistance to sales taxation, the percent population above 65 proved to be a strong and economically significant variable in diminishing the effect of a federal tax policy change on state tax structure. From the analysis, two important results arise: One, a state's initial mix of tax instruments greatly affects the impact of federal tax policy on state tax structure and two, interest groups play a vital role in a state's response to federal changes. |
