State Growth Rates: Taxes, Spending, and Catching Up

The American states have grown at different rates throughout the twentieth century. Abstract Although many explanations have been proposed, the authors focus on two: catching up and state fiscal policies. The authors find that catching up provides the most powerful explanation for differing state growth rates. As real state incomes con verge, states with relatively low real per capita incomes grow more rapidly than states with relatively high per capita incomes. In the years since 1975, however, the evidence indicates that catching up may be slowing down. Regression results nevertheless provide little support for the hypothesis that differences in state taxes now play the more important role.