This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Do state and local taxes affect relative state growth?

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Zsolt Becsi
Abstract

The South has seen a remarkable economic rise during the past three decades. Was this growth a result of automatic forces or was it fueled by state and local tax policies? Traditional economic theory suggests that forces of convergence, not tax policies, have moved the southern states toward catching up with the rest of the nation. But more recent economic models recognize that convergence and low tax rates may not be mutually exclusive explanations for the South's stronger growth. ; This article presents an overview of relative state growth and relative state and local taxation from 1960 to 1992. After a brief discussion of the theoretical issues, the article surveys simple--but revealing--correlations across states and across time that characterize states' experiences. The correlations indicate convergence but also imply that shocks, including tax policy, matter for long-term growth. ; The author argues that the evidence on the growth effects of taxes has been mixed because empirical models imperfectly separate the growth effects of other government policies that occur simultaneously with tax policies. He demonstrates a simple way to get a more nearly accurate specification. His analysis shows that state and local taxes appear to have temporary growth effects that are stronger over shorter intervals and a permanent growth effect that does not disappear. ; In terms of policy implications, if long-term growth rates seem too low relative to other states, lowering aggregate state and local marginal tax rates is likely to have a positive effect on long-term growth rates. However, such a policy also reduces the progressivity of the tax system. No matter what emphasis is placed on growth, states should be aware of the potential trade-off.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.frbatlanta.org/frbatlanta/filelegacydocs/ACFD5.pdf
File Format:
File Function:
Download Restriction: no

Publisher Info
Article provided by Federal Reserve Bank of Atlanta in its journal Economic Review.

Volume (Year): (1996)
Issue (Month): Mar ()
Pages: 18-36
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:fip:fedaer:y:1996:i:mar:p:18-36:n:v.81no2

Contact details of provider:
Postal: 1000 Peachtree St., N.E., Atlanta, Georgia 30309
Phone: 404-521-8500
Email:
Web page: http://www.frbatlanta.org/
More information through EDIRC

Order Information:
Email:

For technical questions regarding this item, or to correct its listing, contact: (Diane Rosenberger).

Related research
Keywords: Local finance ; State finance ; Taxation CL FR Serials;

Other versions of this item:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Peter N. Ireland, 1994. "Two perspectives on growth and taxes," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 1-18. [Downloadable!]
  2. Mofidi, Alaeddin & Stone, Joe A, 1990. "Do State and Local Taxes Affect Economic Growth?," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 686-91, November. [Downloadable!] (restricted)
  3. Robert J. Barro & Xavier Sala-i-Martin, 1991. "Convergence across States and Regions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1991-1), pages 107-182. [Downloadable!]
    Other versions:
  4. Xavier Sala-i-Martin, 1994. "Regional Cohesion: Evidence and Theories of Regional Growth and Convergence," Economics Working Papers 104, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
  5. Danny Quah, 1992. "Empirical cross-section dynamics in economic growth," Discussion Paper / Institute for Empirical Macroeconomics 75, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  6. Garrison, Charles B. & Lee, Feng-Yao, 1995. "The effect of macroeconomic variables on economic growth rates: A cross-country study," Journal of Macroeconomics, Elsevier, vol. 17(2), pages 303-317. [Downloadable!] (restricted)
  7. Pack, Howard, 1994. "Endogenous Growth Theory: Intellectual Appeal and Empirical Shortcomings," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 55-72, Winter. [Downloadable!] (restricted)
  8. Kocherlakota, Narayana R. & Yi, Kei-Mu, 1995. "Can convergence regressions distinguish between exogenous and endogenous growth models?," Economics Letters, Elsevier, vol. 49(2), pages 211-215, August. [Downloadable!] (restricted)
  9. Benson, Bruce L & Johnson, Ronald N, 1986. "The Lagged Impact of State and Local Taxes on Economic Activity and Political Behavior," Economic Inquiry, Oxford University Press, vol. 24(3), pages 389-401, July.
  10. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May. [Downloadable!] (restricted)
  11. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September. [Downloadable!] (restricted)
    Other versions:
  12. Andrew B. Bernard & Steven N. Durlauf, 1994. "Interpreting Tests of the Convergence Hypothesis," NBER Technical Working Papers 0159, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  13. Grossman, Gene M & Helpman, Elhanan, 1994. "Endogenous Innovation in the Theory of Growth," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 23-44, Winter. [Downloadable!] (restricted)
    Other versions:
  14. Koester, Reinhard B & Kormendi, Roger C, 1989. "Taxation, Aggregate Activity and Economic Growth: Cross-Country Evidence on Some Supply-Side Hypotheses," Economic Inquiry, Oxford University Press, vol. 27(3), pages 367-86, July.
  15. Mullen, John K. & Williams, Martin, 1994. "Marginal tax rates and state economic growth," Regional Science and Urban Economics, Elsevier, vol. 24(6), pages 687-705, December. [Downloadable!] (restricted)
  16. Sala-i-Martin, X., 1994. "Regional Cohesion: Evidence and the Theories of Regional Growth and Convergence," Papers 716, Yale - Economic Growth Center.
  17. Stokey, Nancy L & Rebelo, Sergio, 1995. "Growth Effects of Flat-Rate Taxes," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 519-50, June. [Downloadable!] (restricted)
    Other versions:
  18. repec:att:wimass:19941r is not listed on IDEAS
  19. Gerald Carlino & Leonard Mills, 1994. "Convergence and the U.S states: a time series analysis," Working Papers 94-13, Federal Reserve Bank of Philadelphia.
  20. Romer, Paul M, 1994. "The Origins of Endogenous Growth," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 3-22, Winter. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Zsolt Becsi, 1998. "Fiscal competition and reality: A time series approach," Working Paper 98-19, Federal Reserve Bank of Atlanta. [Downloadable!]
  2. Meenagh, David & Minford, Patrick & Wang, Jiang, 2007. "Growth and relative living standards - testing Barriers to Riches on post-war panel data," CEPR Discussion Papers 6288, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Decker, Christopher & Flynn, David, 2009. "The impact of military forts on agricultural investments on the Great Plains in 1880," MPRA Paper 19556, University Library of Munich, Germany. [Downloadable!]
  4. W. Robert Reed, 2006. "The Robust Relationship Between Taxes and State Economic Growth," Working Papers in Economics 06/13, University of Canterbury, Department of Economics and Finance. [Downloadable!]
  5. W. Robert Reed & Cynthia L. Rogers, 2005. "Tax Burden and the Mismeasurement of State Tax Policy," Public Economics 0505001, EconWPA. [Downloadable!]
  6. Daniel G. Swaine, 1998. "What do cross-sectional growth regressions tell us about convergence?," Working Papers 98-4, Federal Reserve Bank of Boston. [Downloadable!]
  7. W. Robert Reed & Cynthia L. Rogers, 2005. "Tax Cuts and Employment Growth in New Jersey: Lessons From a Regional Analysis," Urban/Regional 0506010, EconWPA. [Downloadable!]
  8. Kraybill, David S. & Lobao, Linda, 2001. "The Emerging Roles of County Governments in Rural America: Findings from a Recent National Survey," 2001 Annual meeting, August 5-8, Chicago, IL 20697, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  9. Patrick Minford & David Meenagh & Jiang Wang, 2006. " Testing a Simple Structural Model of Endogenous Growth," CDMA Conference Paper Series 0606, Centre for Dynamic Macroeconomic Analysis. [Downloadable!]
Statistics
Access and download statistics

Did you know? Authors registered on the RePEc Author Service receive monthly emails with details about downloads and abstract views of their works.

This page was last updated on 2010-2-8.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.