How US Counties Use Revenue Windfalls: Evidence from Nebraska’s Inheritance Tax

Abstract

Do local governments save a revenue windfall, spend it or cut taxes? Nebraska's inheritance tax is paid to the county where the deceased lived, so each inheritance tax windfall arrives with a resident's death. Using that timing as a quasi-experiment, I decompose the inheritance tax windfalls into county saving, county spending and lower property taxes, with county audits for 2009–2024 and adopted budgets from 2001. In the year an inheritance tax windfall arrives, county saving rises by about the full inheritance tax windfall, while county spending does not rise significantly. By the end of the following year, cumulative county spending has risen by 0.60 to 0.68 dollars per windfall dollar. Property tax requests do not fall significantly after an inheritance tax windfall.