Howard A. Chernick (Hunter College, Department of Economics) presents Federal-State Tax Interactions in the U.S. and Canada, 40 Publius ___ (2010) (with Jennifer Tennant) at UCLA today as part of its Tax Policy and Public Finance Colloquium Series hosted by Steven Bank and Kirk Stark.  Here is the abstract:

Canadian provinces are more closely harmonized with their federal tax system than in the U.S. Dispersion across provinces in income is higher in Canada, but income tax rates show less variation. Both Canada’s equalization system and U.S. tax deductibility reduce interstate disparities in federal tax burdens. Econometric analysis of the effect of federal tax rates on state tax rates in the U.S. shows an overall independence between federal and state income taxation, suggesting that vertical tax competition is less important in the U.S. While deductibility encourages more progressive sub-national taxation, we also find a significant displacement effect for higher income taxpayers, with higher federal taxes displacing state income taxes in the highest income quintile. Despite this distributional offset, the overall rate of income taxation is unaffected by federal tax rates. We find a positive relationship between federal tax burdens on low-income taxpayers and state reliance on consumption taxes.