The Robust Relationship between Taxes and U.S. State Income Growth

2008/03/01 by W. Robert Reed
Economics, Econometrics and Finance · #Fiscal Policy and Economic Growth #Economic Growth and Productivity #Fiscal Policies and Political Economy

paper · doi:10.17310/ntj.2008.1.03

Abstract

I estimate the relationship between taxes and income 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 income growth. This finding is generally robust across alternative variable specifications, alternative estimation procedures, alternative ways of dividing the data into "five-year" periods, and across different time periods and Bureau of Economic Analysis (BEA) regions, though state-specific estimates vary widely. I also provide an explanation for why previous research has had difficulty identifying this "robust" relationship.

Citations

• What To Do (and Not to Do) with Time-Series Cross-Section Data
• Biases in Dynamic Models with Fixed Effects

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