Marginal tax rates and state economic growth

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

“…This is of particular importance to policymakers who are interested in extrapolating the results of empirical studies to their own states and time periods. With only a few exceptions, previous research on tax effects reports only average effects: Mullen and Williams (1994) and Chernick (1997) check for (1) robustness across different time periods and (2) the effect of omitting some states from their samples. My analysis goes further by interacting tax variables with time, region, and state dummy variables to check for robustness across these dimensions.…”

“…Tax burden is by far the most commonly employed measure of state taxation, and can be thought of as the "effective average tax rate" in a state (e.g., Helms, 1985;Mofi di and Stone, 1990;Mullen and Williams, 1994;Carroll and Wasylenko, 1994;Knight, 2000;Caplan, 2001;Yamarik, 2000Yamarik, , 2004Alm and Rogers, 2005). Table 1 summarizes the initial results.…”

“…2 A related issue concerns how to defi ne the length of a time period for time series observations of states. Previous research on state-level taxes and growth has relied almost exclusively on either cross-sectional (e.g., Romans and Subrahmanyam, 1979;Mullen and Williams, 1994;Yamarik, 2000) or annual panel data (e.g., Helms, 1985;Crain and Lee, 1999).…”

“…Helms (1985) includes variables for state wages, percent unionization, and population density. Mullen and Williams (1994) include variables for growth of the civilian labor force, and the growth rates of private and public capital. Bania et al (2007) employ the unemployment rate, percentage of the population that is working age, and union membership rates.…”

“…Evans and Karras, 1994;Garcia-Milá et al, 1996;Crain and Lee, 1999), but not both. Romans and Subrahmanyam (1979) and Mullen and Williams (1994) are the exceptions.…”