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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.

Suggested Citation

  • W. Robert Reed, 2006. "The Robust Relationship Between Taxes and State Economic Growth," Working Papers in Economics 06/13, University of Canterbury, Department of Economics and Finance.
    • Handle: RePEc:cbt:econwp:06/13
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    Cited by:

    1. Mantobaye Moundigbaye & William Rea & W. Robert Reed, 2016. "More Evidence On “Which Panel Data Estimator Should I Use?”," Working Papers in Economics 16/18, University of Canterbury, Department of Economics and Finance.
    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.
    3. António Afonso & Juan Alegre, 2011. "Economic growth and budgetary components: a panel assessment for the EU," Empirical Economics, Springer, vol. 41(3), pages 703-723, December.
    4. Moundigbaye, Mantobaye & Rea, William S. & Reed, W. Robert, 2018. "Which panel data estimator should I use? A corrigendum and extension," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 12, pages 1-31.

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    More about this item

    Keywords

    U.S. states; Economic development; Economic growth; Fiscal policy; Taxes; Tax burden; Panel data;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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