Tax structure and state economic growth during the Great Recession

Abstract

Concern about the effect of taxes on economic growth and development in the United States is longstanding. While most studies are concerned with the growth impacts of tax burden, marginal rates, or the impact of a particular tax, there are few works that examine the impact of tax structure in the way it is defined in this work. Here, tax structure is defined as the shares of revenue collected by various taxes. Using a pool of data on the 50 states between 2004 and 2010, this paper explores the relationship between state and local tax structure and growth of real per-capita GDP through the Great Recession centered in 2008. The results are used to generate estimates of the growth impacts of revenue neutral changes in tax shares.

Keywords:

• Tax structure
• Taxes and growth
• Great Recession

Notes

1 The National Bureau of Economic Research (NBER) identifies the trough as June 2009 however the annual data provided here masks this. See http://www.nber.org/cycles.html.

2 A gap in data availability limits the choice of beginning year thus limiting the ability to infer long-term growth impacts in the present work.