RESOURCE MISALLOCATION FROM INTERSTATE TAX EXPORTATION: ESTIMATES OF EXCESS SPENDING AND WELFARE LOSS IN A MEDIAN VOTER FRAMEWORK

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Abstract
The conditions under which tax exportation and importation affect the median voter's marginal tax share and income are discussed. The paper estimates for the median voter in each State the change in income and public goods tax price generated by interstate tax exportation, and calculates the increased public spending, gross gains and losses, and associated welfare loss which results. The price and income elasticities used in the analysis are estimated in a two-equation median voter model which allows the tax share to be dependent on budget size. The implications for intergovernmental policy issues of the median voter model results and the public spending and welfare loss estimates are discussed.

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