General equilibrium analysis of the 1986 tax reform act on state and local governments : a case study of Missouri

While the analysis is necessarily simplified due to a lack of specific data, the model illustrates the complicated and both direct and indirect ways that federal tax reform can affect state revenues. The model finds the 1986 federal tax reform results in surprisingly large increases in state personal and corporate income tax revenues in Missouri. While it is easy to overemphasize the significance of the large revenue increases that the model produces, as evidenced by the current revenue problems that face New York State, the paper nonetheless illustrates the model building that is necessary to simulate the implications of federal tax reform on state and local governments. If further federal tax reform proposals, such as corporate and personal income tax integration and more reduction in personal income tax rates along with significant tax base expansion, take hold, states and localities will find general equilibrium analyses useful policy tools. (Author abstract)