The effect of state income taxation on per capita income growth

Randall G. Holcombe, Donald J. Lacombe

Research output: Contribution to journalArticle

39 Scopus citations

Abstract

This study examines the impact of changes in marginal state income tax rates on per capita income by comparing income growth in counties on state borders with income growth in adjacent counties across the state border. Compared to a standard cross-sectional analysis, this border-matching technique is a better way to hold constant many factors that can vary for geographical reasons, such as climate, culture, and proximity to markets. The results show that over the 30-year period from 1960 to 1990, states that raised their income tax rates more than their neighbors had slower income growth and, on average, a 3.4% reduction in per capita income.

Original languageEnglish
Pages (from-to)292-312
Number of pages21
JournalPublic Finance Review
Volume32
Issue number3
DOIs
StatePublished - May 2004

Keywords

  • Income growth
  • Per capita income
  • State borders
  • State income taxation
  • State tax policies

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