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Saturday, May 10, 2008

State Income Taxes and Economic Growth

The Cato Journal has an article looking at the effects of state taxes and economic growth. Their finding, which should not surprise our readers, is that high marginal tax rates significantly reduce economic growth.

The analysis looks at data from 1964-2004 and controls for original state per-capita income, tax regressivity, and region (somewhat surprisingly, states in the West had an advantage and states in the Rust Belt had a disadvantage to New England, there was no significant difference among the South East or Mid-East). Their main finding is that higher marginal tax rates results in lower GDP Growth, as does the presence of a state income tax.

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