Does the Federal Government Equitably Redistribute Income Between the States?

Carole E. Scott

Through progressive income taxation and the provision of transfer payments to people whose earned income is low, the Federal government seeks to cause people's after tax income to differ less than does their before tax income. As is true of many Western European nations, in the United States income dispersion has been increasing in the since the 1970s. Income redistribution carried out through transfer payments to individuals may have regional effects because some states have a relatively larger share of lower income groups than do others, and some grant programs are designed to favor low income states. Also, because Federal installations, both civilian and military, and businesses that supply the government with goods and services are not evenly distributed among the states, other federal spending, too, has a regional impact. Twenty states receive less from Washington than they send to it. Thirty states receive more from Washington than they receive from it. Examined in this article are the ten largest "donor" states and the ten largest recipient states. Considered is whether Public Choice Theory seems to explain the income redistribution between these states.

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