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The Robust Relationship Between Taxes and U.S. State Income Growth

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  • Reed, W. Robert

Abstract

I estimate the relationship between taxes and income 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 income growth. This finding is generally robust across alternative variable specifications, alternative estimation procedures, alternative ways of dividing the data into "five–year" periods, and across different time periods and Bureau of Economic Analysis (BEA) regions, though state–specific estimates vary widely. I also provide an explanation for why previous research has had difficulty identifying this "robust" relationship.

Suggested Citation

  • Reed, W. Robert, 2008. "The Robust Relationship Between Taxes and U.S. State Income Growth," National Tax Journal, National Tax Association;National Tax Journal, vol. 61(1), pages 57-80, March.
  • Handle: RePEc:ntj:journl:v:61:y:2008:i:1:p:57-80
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    References listed on IDEAS

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    Cited by:

    1. Joe A. Stone, 2016. "Do Balanced-Budget Rules Increase Growth?," Bulletin of Economic Research, Wiley Blackwell, vol. 68(1), pages 79-89, January.
    2. repec:bla:coecpo:v:35:y:2017:i:1:p:165-192 is not listed on IDEAS
    3. Ojede, Andrew & Yamarik, Steven, 2012. "Tax policy and state economic growth: The long-run and short-run of it," Economics Letters, Elsevier, vol. 116(2), pages 161-165.
    4. Tweneboah Senzu, Emmanuel & Ndebugri, Haruna, 2018. "The economic evidence in the relationship between corporate tax and private investment in Ghana," MPRA Paper 84729, University Library of Munich, Germany.
    5. Dean Scrimgeour, 2015. "Dynamic Scoring in a Romer-Style Economy," Southern Economic Journal, Southern Economic Association, vol. 81(3), pages 697-723, January.
    6. Crosby, Andrew W. & Merriman, David F., 2016. "What Happened to Illinois’ Economy Following the January 2011 Tax Increases? A Midwestern Comparison," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 46(1).
    7. Xavier Giroud & Joshua D. Rauh, 2016. "State Taxation and the Reallocation of Business Activity: Evidence from Establishment-Level Data," Economics Working Papers 16103, Hoover Institution, Stanford University.
    8. Davis, Matt & Vedder, Andrea & Stone, Joe, 2015. "Local Tax Limits, Student Achievement, and School-Finance Equalization," MPRA Paper 63704, University Library of Munich, Germany.
    9. Richard Funderburg & Timothy J. Bartik & Alan H. Peters & Peter S. Fisher, 2013. "The Impact Of Marginal Business Taxes On State Manufacturing," Journal of Regional Science, Wiley Blackwell, vol. 53(4), pages 557-582, October.
    10. Zachary Horváth & Brian David Moore & Jonathan C. Rork, 2014. "Does Federal Aid to States Aid the States?," Growth and Change, Wiley Blackwell, vol. 45(2), pages 333-361, June.
    11. repec:clh:resear:v:5:y:2012:i:14 is not listed on IDEAS
    12. repec:bla:presci:v:96:y:2017:i:3:p:627-645 is not listed on IDEAS
    13. repec:liu:liucej:v:14:y:2017:i:2:p:265-301 is not listed on IDEAS
    14. Lindsay N. Amiel & Steven Deller & Judith I. Stallman, 2012. "Economic Growth and Tax and Expenditure Limitations," The Review of Regional Studies, Southern Regional Science Association, vol. 42(3), pages 185-206, Winter.
    15. Xavier Giroud & Joshua Rauh, 2017. "State Taxation and the Reallocation of Business Activity: Evidence from Establishment-Level Data," Working Papers 17-02, Center for Economic Studies, U.S. Census Bureau.
    16. Arwiphawee Srithongrung & Isaac Sánchez-Juárez, 2015. "Fiscal Policies and Subnational Economic Growth in Mexico," International Journal of Economics and Financial Issues, Econjournals, vol. 5(1), pages 11-22.
    17. William Gbohoui & François Vaillancourt, 2016. "Sub-national Tax Policy and State Level Growth Dynamics: Evidence from U.S. States," CIRANO Working Papers 2016s-13, CIRANO.
    18. Goldberg, Andrew & Romalis, John, 2015. "Public Debt and Growth in U.S. States," Working Papers 2015-10, University of Sydney, School of Economics.
    19. repec:clp:wpaper:wp1 is not listed on IDEAS
    20. Xavier Giroud & Joshua Rauh, 2015. "State Taxation and the Reallocation of Business Activity: Evidence from Establishment-Level Data," NBER Working Papers 21534, National Bureau of Economic Research, Inc.
    21. Atems, Bebonchu, 2015. "Another look at tax policy and state economic growth: The long-run and short-run of it," Economics Letters, Elsevier, vol. 127(C), pages 64-67.

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