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Sub-national Tax Policy and State Level Growth Dynamics: Evidence from U.S. States

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  • William Gbohoui
  • François Vaillancourt

Abstract

To understand the role of subnational tax policies in explaining regional growth, we present stylized facts on U.S. state income and state-level tax policies. We use real Gross State Products (GSP) as the indicator of economic performance in contrast to the existing literature, which relies on Personal Income. The results reveal an increase in per capita income disparities, and time - persistent differences in human capital and physical capital between U.S. states. In addition, we find that subnational tax policies vary widely between states. Using augmented Barro regressions, we show that educational attainment, and state-level tax policies are the key determinants in explaining the differences between state-level economic growth. More precisely, higher corporate income or general sales taxes significantly retard economic growth, while human capital positively impacts state-level growth.

Suggested Citation

  • 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.
    • Handle: RePEc:cir:cirwor:2016s-13
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    Keywords

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    JEL classification:

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