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The Relationship Between Taxes and Growth at the State Level: New Evidence

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  • William G. Gale
  • Aaron Krupkin
  • Kim Rueben

Abstract

The effects of state tax policy on economic growth, entrepreneurship, and employment remain controversial. Using a framework that in prior research generated significant, negative, and robust effects of taxes on growth, we find that neither tax revenues nor top income tax rates bear stable relationships to economic growth or employment across states and over time. While the rate of firm formation is negatively affected by top income tax rates, the effects are small in economic terms. Our results are inconsistent with the view that cuts in top state income tax rates will automatically or necessarily generate growth.

Suggested Citation

  • William G. Gale & Aaron Krupkin & Kim Rueben, 2015. "The Relationship Between Taxes and Growth at the State Level: New Evidence," National Tax Journal, National Tax Association;National Tax Journal, vol. 68(4), pages 919-942, December.
    • Handle: RePEc:ntj:journl:v:68:y:2015:i:4:p:919-942
    DOI: 10.17310/ntj.2015.4.02
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