Direct Versus Indirect Taxes and State Income Growth: 1991–2015

Michael Mamo ()
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Michael Mamo: Westminster College of Utah

Eastern Economic Journal, 2023, vol. 49, issue 4, No 3, 516-548

Abstract: Abstract The role of taxes on state growth remains controversial. I focus on the roles of direct and indirect taxes. Using standard growth frameworks, I estimate the relationships between tax structures and state per capita income growth. I find that the direct-to-indirect tax ratio is positively correlated with income growth. Indirect taxes and specifically property taxes exhibit consistently negative association with growth. Corporate and individual income, and sales taxes have no detectable association to growth. Indirect taxes are generally associated with lower growth but also worsening inequality, suggesting a socially suboptimal mix of state taxes. The findings are generally robust to accounting for tax endogeneity.

Keywords: State taxes; State economic growth; Direct and indirect taxes; Composition of taxes; Tax structures (search for similar items in EconPapers)
JEL-codes: H21 H71 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1057/s41302-023-00254-1

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