Tax Cuts and Employment in New Jersey: Lessons From a Regional Analysis

Abstract

The Whitman administration’s 30% reduction in New Jersey’s personal income taxes from 1994 to 1996 is prominently cited as a role model for state fiscal policy. The authors investigate whether the growth benefits attributed to the Whitman tax cuts are warranted. Panel data methods are applied to annual observations of county-level employment growth fromNew Jersey and the surrounding economic region. This study’s analysis does not support the hypothesis that tax cuts stimulated employment growth in New Jersey. Although New Jersey did experience substantial employment growth subsequent to the tax cuts, most of this growth was shared by the nearby Economic Areas.