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Are high taxes restricting Indiana’s growth?

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  • Tatom, John

Abstract

A program sponsored by the Indiana Economic Development Corporation aims to increase the quantity and quality of available human resourcesby encouraging former residents to come back. Indiana’s population growth has been weak relative to the rest of the country. Over the next 25 years US population growth is expected to slow (0.8 percent per year) and Indiana’s is expected to fall back more sharply (to 0.3 percent per year). Such slow growth in population and the workforce will curtail the pace of expansion of overall output and income in the US and all the more so in Indiana. A broader effort could usefully focus on recruiting others to migrate to Indiana or on inducing existing residents to stay. In-migration rates are strongly affected by state and local tax rates. A cross section analysis shows that each one percentage point rise in the tax rate will reduce the in-migration rate, and population and employment growth, by 0.41 percentage points. Modest cuts in state and local taxes could boost population growth to the national average, staving off decline in population and employment growth.

Suggested Citation

  • Tatom, John, 2007. "Are high taxes restricting Indiana’s growth?," MPRA Paper 4307, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:4307
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    References listed on IDEAS

    as
    1. Dennis Epple & Thomas Romer & Holger Sieg, 2001. "Interjurisdictional Sorting and Majority Rule: An Empirical Analysis," Econometrica, Econometric Society, vol. 69(6), pages 1437-1465, November.
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    Keywords

    migration rate; taxes; growth; demographics;

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • J1 - Labor and Demographic Economics - - Demographic Economics

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