National Tax Journal, March 2011, 64 (1), 59–84 ON ESTIMATING MARGINAL TAX RATES FOR U.S. STATES W. Robert Reed, Cynthia L. Rogers, and Mark Skidmore This paper presents a procedure for generating state-specific time-varying estimates of marginal tax rates (MTRs). Most estimates of MTRs follow a procedure developed by Koester and Kormendi (1989) (K&K). Unfortunately, the time-invariant nature of the K&K estimates precludes their use as explanatory variables in panel data stud- ies with fixed effects. Furthermore, the associated MTR estimates are not explicitly linked to statutory tax parameters. Our approach addresses both shortcomings. Using comprehensive tax policy data, we estimate state-specific, time-varying MTRs for all 50 states over the years 1977–2004. The inclusion of statutory tax variables has a significant impact on MTR estimates. Keywords: state tax revenues, marginal tax rates, tax burden, tax progressivity, economic growth JEL Codes: H71, H24, H25 The central role of the government in the economy and the associated high marginal tax rates mean that the problems of taxing and spending will con- tinue to provide challenging opportunities for research in public economics. – Feldstein (2002, p. 325) I. INTRODUCTION T his paper generalizes a commonly-used approach for estimating marginal tax rates (MTRs). MTRs are of particular interest to fiscal policy-makers because it is gener- ally believed that they are influential drivers of economic activity. An important niche in the voluminous literature on taxes and economic growth is concerned with distinguishing the effects of marginal from average tax rates. Examples from the international growth literature include Garrison and Lee (1992), Easterly and Rebelo (1993), Padovano and Galli (2002), and Myles (2009). Examples from the literature on the growth of U.S. states include Mullen and Williams (1994), Becsi (1996), Yamarik (2000), and Poulson and Kaplan (2008). W. Robert Reed: Department of Economics and Finance, University of Canterbury, Christchurch, New Zealand (bobreednz@yahoo.com) Cynthia L. Rogers: Department of Economics, University of Oklahoma, Norman, OK, USA (crogers@ou.edu) Mark Skidmore: Department of Agriculture, Food, and Resource Economics and Department of Economics, Michigan State University, East Lansing, MI, USA (mskidmor@msu.edu)