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Direct Versus Indirect Taxes and State Income Growth: 1991–2015

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  • Michael Mamo

    (Westminster College of Utah)

Abstract

The role of taxes on state growth remains controversial. I focus on the roles of direct and indirect taxes. Using standard growth frameworks, I estimate the relationships between tax structures and state per capita income growth. I find that the direct-to-indirect tax ratio is positively correlated with income growth. Indirect taxes and specifically property taxes exhibit consistently negative association with growth. Corporate and individual income, and sales taxes have no detectable association to growth. Indirect taxes are generally associated with lower growth but also worsening inequality, suggesting a socially suboptimal mix of state taxes. The findings are generally robust to accounting for tax endogeneity.

Suggested Citation

  • Michael Mamo, 2023. "Direct Versus Indirect Taxes and State Income Growth: 1991–2015," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 49(4), pages 516-548, October.
    • Handle: RePEc:pal:easeco:v:49:y:2023:i:4:d:10.1057_s41302-023-00254-1
    DOI: 10.1057/s41302-023-00254-1
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    References listed on IDEAS

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    More about this item

    Keywords

    State taxes; State economic growth; Direct and indirect taxes; Composition of taxes; Tax structures;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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