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The Robust Relationship Between Taxes and State Economic Growth

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Abstract

I estimate the relationship between taxes and economic growth using data from 1970-1999 and the forty-eight continental U.S. states. I find that taxes used to fund general expenditures are associated with significant, negative effects on economic growth. Further, this finding is robust across (i) alternative variable specifications, (ii) alternative estimation procedures, (iii) alternative ways of dividing the data into ¡°five-year¡± periods, and (iv) allowing for individual-specific time and state effects. I also provide an explanation for why previous research has had difficulty identifying this ¡°robust¡± relationship.

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File URL: http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/0613.pdf
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Bibliographic Info

Paper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 06/13.

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Length: 40 pages
Date of creation: 25 Nov 2006
Date of revision:
Handle: RePEc:cbt:econwp:06/13

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Keywords: U.S. states; Economic development; Economic growth; Fiscal policy; Taxes; Tax burden; Panel data;

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References

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  13. 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.
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Cited by:
  1. António Afonso & Juan González Alegre, 2007. "Economic Growth and Budgetary Components: a Panel Assessment for the EU," Working Papers Department of Economics 2007/29, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  2. W. Robert Reed & Cynthia L. Rogers & Mark Skidmore, 2008. "On Estimating Marginal Tax Rates and Tax Progressivities for U.S. States," Working Papers in Economics 08/17, University of Canterbury, Department of Economics and Finance.

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