Heterogeneous Responses to the U.S. Narrative Tax Changes: Evidence from the U.S. States

This paper investigates the assumption of homogeneous effects federal tax changes across U.S. states and identifies where why that may not be valid. More specifically, what determines transmission mechanism shocks at state level? How vital are states' fiscal structures, financial conditions, labor market rigidities, industry mix? Do these economic structural characteristics drive level different horizons? study employs a panel factor-augmented vector autoregression (FAVAR) technique to answer issues. The findings show economies respond homogeneously in terms employment price levels; however, they react heterogeneously real GDP personal income growth. In most states, reactions statistically significant, heterogeneity cuts is significantly related state's structure, manufacturing composition, market's rigidity. A cross-state regression analysis shows with higher elasticity, tax, strict regulation, policy uncertainties relatively less responsive changes. contrast, magnitude response GDP, income, larger share finance, manufacturing, lower burdens, flexible credit markets.