Replication data for: Do Output Contractions Cause Investment in Fiscal Capacity?

This paper shows that an economic slump can induce a government to invest in fiscal capacity. Large negative income shocks stress the revenue-raising capability of narrow tax bases, making an increase in tax base breadth desirable relative to its fixed implementation cost. A broader tax base enables revenue to be raised at lower tax rates, and so lower deadweight loss. The behavior of US state governments during the Great Depression supports the model: states experiencing larger than average negative income shocks were more likely to adopt a retail sales tax than were states experiencing smaller than average income shocks.