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Tax Progressivity and State Economic Performance

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  • Howard Chernick

    (Hunter College and the Graduate Center, City University of New York)

Abstract

Principles offiscal federalism suggest that subnational units of government should rely on benefits-received financing, implying regressivity in state and local taxes. Empirically, however, states and their localities vary enormously in the degree of progressivity of their tax systems. This article investigates the effect of tax progressivity on economic growth. Using a pooled cross-section model from 1977 to 1993, the author found that the degree of progressivity has no effect on the rate of growth of state personal income per capita. Measuring growth rates over the entire period, the author found that progressivity has a significant negative effect on economic growth. The long-period result is driven by the high growth rates of a small number of northeastern states, who benefited from strong regional growth and their tax haven status adjacent to more progressive states. The weak progressivity effect suggests that there is considerable scope for differences in tax incidence across states.

Suggested Citation

  • Howard Chernick, 1997. "Tax Progressivity and State Economic Performance," Economic Development Quarterly, , vol. 11(3), pages 249-267, August.
    • Handle: RePEc:sae:ecdequ:v:11:y:1997:i:3:p:249-267
    DOI: 10.1177/089124249701100308
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    Cited by:

    1. Reed, W. Robert, 2008. "The Robust Relationship Between Taxes and U.S. State Income Growth," National Tax Journal, National Tax Association;National Tax Journal, vol. 61(1), pages 57-80, March.
    2. Jeffrey Thompson, 2011. "Costly Migration and the Incidence of State and Local Taxes," Working Papers wp251, Political Economy Research Institute, University of Massachusetts at Amherst.
    3. Emilian DOBRESCU, 2016. "Controversies over the Size of the Public Budget," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 5-34, December.
    4. Ted K. Bradshaw & Edward J. Blakely, 1999. "What are “Third-Wave†State Economic Development Efforts? From Incentives to Industrial Policy," Economic Development Quarterly, , vol. 13(3), pages 229-244, August.
    5. Howard Chernick, 2010. "Redistribution at the State and Local Level: Consequences for Economic Growth," Public Finance Review, , vol. 38(4), pages 409-449, July.
    6. Peter Bluestone & Carolyn Bourdeaux, 2019. "Dynamic Revenue Analysis: Experience of the States," Center for State and Local Finance Working Paper Series cslf1911, Andrew Young School of Policy Studies, Georgia State University.

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