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
Date Written: December 2015
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: Suggested Citation