A reevaluation and extention of previous research on state and local taxes and economic development.

Abstract

This study is a reevaluation of five studies that have had an impact of the way we think about state and local taxes. This study has four phases. In the first phase, I independently replicate the original studies. In the second phase, I estimate the models with a recent, uniform time-period (1977--1997) to place these studies on an equal footing. In the third phase, I estimate the models with a common time-period and with a common dependent variable (per-capita personal income). In the final phase, I correct for an accounting bias by subtracting welfare expenditures from personal income and re-estimate the models a fourth time. When these models are estimated with a common, later time-period with a common dependent variable, the seeming consistency of these five studies no longer holds. The conclusion of this research is the literature that deals with the relationship between state and local taxes and economic development rests on a weak foundation.