Sub-national Tax Policy and State Level Growth Dynamics: Evidence from U.S. States

William Gbohoui and Francois Vaillancourt

CIRANO Working Papers from CIRANO

Abstract: To understand the role of subnational tax policies in explaining regional growth, we present stylized facts on U.S. state income and state-level tax policies. We use real Gross State Products (GSP) as the indicator of economic performance in contrast to the existing literature, which relies on Personal Income. The results reveal an increase in per capita income disparities, and time - persistent differences in human capital and physical capital between U.S. states. In addition, we find that subnational tax policies vary widely between states. Using augmented Barro regressions, we show that educational attainment, and state-level tax policies are the key determinants in explaining the differences between state-level economic growth. More precisely, higher corporate income or general sales taxes significantly retard economic growth, while human capital positively impacts state-level growth.

Keywords: Regional growth; state and local taxation (search for similar items in EconPapers)
JEL-codes: H71 R11 (search for similar items in EconPapers)
Date: 2016-03-29
New Economics Papers: this item is included in nep-geo, nep-gro, nep-pbe, nep-pub and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:cir:cirwor:2016s-13

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