The Relationship Between Taxes and Growth at the State Level: New Evidence

National Tax Journal 68(4). December 2015

24 Pages Posted: 31 May 2019

See all articles by William G. Gale

William G. Gale

Brookings Institution

Aaron Krupkin

Brookings Institution

Kim S. Rueben

Tax Policy Center

Date Written: December 2015

Abstract

The effects of state tax policy on economic growth, entrepreneurship, and employment remain controversial. Using a framework that in prior research generated significant, negative, and robust effects of taxes on growth, we find that neither tax revenues nor top income tax rates bear stable relationships to economic growth or employment across states and over time. While the rate of firm formation is negatively affected by top income tax rates, the effects are small in economic terms. Our results are inconsistent with the view that cuts in top state income tax rates will automatically or necessarily generate growth.

Keywords: state taxes, state economic growth, firm formation, tax cuts

JEL Classification: H71

Suggested Citation

Gale, William G. and Krupkin, Aaron and Rueben, Kim S., The Relationship Between Taxes and Growth at the State Level: New Evidence (December 2015). National Tax Journal 68(4). December 2015. Available at SSRN: https://ssrn.com/abstract=3385496

William G. Gale (Contact Author)

Brookings Institution ( email )

1775 Massachusetts Avenue, NW
Washington, DC 20036
United States
202-797-6148 (Phone)
202-797-6181 (Fax)

Aaron Krupkin

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

Kim S. Rueben

Tax Policy Center ( email )

Urban Institute
2100 M Street NW
Washington, DC 20009
United States

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