A Replication of “The Robust Relationship between Taxes and US State Income Growth” (National Tax Journal 2008)

Abstract

Using state-level data from 1970 to 1999 and a five-year interval approach, Reed provides robust evidence that taxes have a negative effect on state economic growth. Subsequent work by Gale, Krupkin, and Rueben uses more recent data, ending with the five-year period around the Great Recession, and provides evidence that the relationship is not stable. We take a systematic approach to replicating and then updating Reed to include the most recent data possible to see whether the relationship is sensitive to the time period considered. Our analyses corroborate Reed’s findings of a consistently negative and often statistically significant effect of taxes on state economic growth but also suggest that the long-run effects no longer exist in more current years.