State Income Tax Adoption and Economic Growth

Dye, Thomas R.; Feiock, Richard C.
September 1995
Social Science Quarterly (University of Texas Press);Sep95, Vol. 76 Issue 3, p648
Academic Journal
The article identifies whether states adopting a personal income tax experienced less growth in personal income than those states not taxing income. It includes traditional economic theory on the effect of income taxation on economic growth; Neoclassical economists' claims over the incentive effects of high rates of income taxes; per capita personal income changes for states adopting and not adopting an income tax in 1950 and 1988. In recent years political scientists and economists have contentiously debated the effects of income taxation on economic growth, particularly income taxation by states in a competitive federal system. This article seeks to identify whether states adopting a personal income tax experienced less growth in personal income than those states not taxing income. A pooled cross-sectional time series analysis of the U.S. states from 1950 to 1989 is used to examine the effects of tax adoption on per capita income. The findings indicate that, while national economic conditions were the most important determinant of state economic growth, adoption of an income tax had a significant negative effect on state personal income.


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