Taxes, growth, equity, and welfare

Social Philosophy and Policy

Volumn 23, Issue 2, 2006, Pages 53-72

  Vedder, Richard ^a  

^a OHIO UNIVERSITY   (United States)

Author keywords

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Indexed keywords

EID: 33745650268     PISSN: 02650525     EISSN: 14716437     Source Type: Journal    
DOI: 10.1017/S026505250606016X     Document Type: Article

References (76)

1. Jon Bakija and Joel Slemrod, "Do the Rich Flee from High Taxes? Evidence from Federal Estate Tax Returns," Cambridge, MA: National Bureau of Economic Research (hereafter NBER) Working Paper w10645, July 2004.
2. Raj Chetty and Emmanuel Saez, "Do Dividend Payments Respond to Taxes? Preliminary Evidence from the 2003 Dividend Tax Cut," Cambridge, MA: NBER Working Paper w10572, June 2004.
3. Steven J. Davis and Magnus Henrekson, "Tax Effects on Work Activity, Industry Mix, and Shadow Economy Size: Evidence from Rich-Country Comparisons," Cambridge, MA: NBER Working Paper w10509, May 2004.
4. James Poterba, "Taxation and Corporate Payout Policy," Cambridge, MA: NBER Working Paper w10321, February 2004.
5. Edward Prescott, "Why Do Americans Work So Much More Than Europeans?" Cambridge, MA: NBER Working Paper w1031.6, February 2004.
6. John F. Due, "Studies of State-Local Tax Influences on the Location of Industry," National Tax Journal 14 (November 1961): 163-73.
7. Ronald Grieson, William Hamovitch, and Richard Morgenstern, "The Effects of Business Taxation on Industry," Journal of Urban Economics, April 1977;
8. Deborah S. Ecker and Richard F. Syron, "Personal Taxes and Interstate Competition for High Technology Industries," New England Economic Review, September/October 1979, 25-32;
9. Thomas R. Plaut and Joseph E. Pluta, "Business Climate, Taxes and Expenditures, and State Industrial Growth in the United States," Southern Economic Journal 50, no. 1 (July 1983): 99-119;
10. and Robert Premus, "Location of High Technology Firms and Economic Development," Staff Study, Joint Economic Committee of Congress (Washington, DC: Government Printing Office, 1983).
11. Thomas Romans and Ganti Subrahmanyam, "State and Local Taxes, Transfers, and Regional Income Growth," Southern Economic Journal 46, no. 2 (October 1979): 435-44;
12. L. Jay Helms, "The Effect of State and Local Taxes on Economic Growth: A Time Series-Cross Section Approach," Review of Economics and Statistics 67, no. 4 (November 1985): 574-82;
13. Bruce L. Benson and Ronald N. Johnson, "The Lagged Impact of State and Local Taxes on Economic Activity and Political Behavior," Economic Inquiry 24, no. 3 (July 1986): 389-401;
14. Victor A. Canto and Robert Webb, "The Effect of State Fiscal Policy on State Relative Economic Performance," Southern Economic Journal 54, no. 1 (July 1987): 186-202;
15. and Alaeddin Mofidi and Joe A. Stone, "Do State and Local Taxes Affect Economic Growth?" Review of Economics and Statistics 72, no. 4 (November 1990): 686-91.
16. Five representative examples: Keith Marsden, "Links Between Taxes and Economic Growth: Some Empirical Evidence," Washington, DC: World Bank Staff Working Papers no. 604, 1983;
17. Reinhard B. Koester and Roger C. Kormendi, "Taxation, Aggregate Activity, and Economic Growth: Cross-Country Evidence on Some Supply-Side Hypotheses," Economic Inquiry 27, no. 3 (July 1989): 367-80;
18. Alan Reynolds, "Some International Comparisons of Supply-Side Policy," Cato Journal 6, no. 2 (Fall 1985): 545-55;
19. Bernhard Heitger, "Convergence, 'The Tax State,' and Economic Dynamics," Weltwirtschaftliches Archiv 129, no. 2 (1993): 254-74;
20. and Gian Maria Milesi-Ferretti and Nouriel Roubini, "Growth Effects of Income and Consumption Taxes," Journal of Money, Credit, and Banking 30, no. 4 (November 1998): 721-44.
21. Six examples: Michael Wasylenko and Therese J. McGuire, "Jobs and Taxes: The Effects of Business Climates on States' Employment Growth Rates," National Tax Journal 38, no. 4 (December 1985): 497-511;
22. Andrew Newell and James Symons, "Macroeconomic Consequences of Taxations in the '80s," Discussion Paper 121 (London: London School of Economics, Centre for Economic Performance), February 1993;
23. Ernest Goss, Phillips Preston, and Joseph M. Phillips, "State Employment Growth: The Impact of Taxes and Economic Development Agency Spending," Growth and Change 25, no. 3 (Summer 1994): 320-33;
24. Douglas R. Dalenberg and Mark D. Partridge, "The Effects of Taxes, Expenditures, and Public Infrastructure on Metropolitan Area Employment," Journal of Regional Science 35, no. 4 (November 1995): 617-40;
25. Guido Tabellini and Francesco Daveri, "Unemployment, Growth, and Taxation in Industrial Countries," London: Centre for Economic Policy Research, Discussion Paper 1681, August 1997;
26. and Stephen T. Mark, Therese J. McGuire, and Leslie E. Papke, "The Influence of Taxes on Employment and Population Growth: Evidence from the Washington, D.C. Metropolitan Area," National Tax Journal 53, no. 1 (March 2000): 105-23. For Prescott's work, see note 5 above.
27. Helen F. Ladd and Katharine L. Bradbury, "City Taxes and Property Tax Bases," National Tax Journal 41, no. 4 (December 1988): 503-23.
28. Robert Carroll et al., "Personal Income Taxes and the Growth of Small Firms," Cambridge, MA: NBER Working Paper w7980, October 2000;
29. and James R. Hines, Jr., "Altered States: Taxes and the Location of Foreign Direct Investment in America," American Economic Review 86, no. 5 (December 1996): 1076-94.
30. A few representative samples from different time periods: Richard J. Cebula, "Local Government Policies and Migration: An Analysis for SMSA's in the United States, 1965-1970," Public Choice 19 (Fall 1974): 185-93;
31. Lynn E. Browne, "The Shifting Pattern of Interregional Migration," New England Economic Review, November-December 1979, 17-32;
32. William A. Niskanen, "The Case for a New Fiscal Constitution," Journal of Economic Perspectives 6, no. 2 (Spring 1992): 13-24;
33. and Karen Smith Conway and Andrew J. Houtenville, "Elderly Migration and State Fiscal Policy: Evidence from the 1990 Census Migration Flows," National Tax Journal 54 no. 1 (March 2001): 103-23.
34. It is true that the 1950s European growth rates were at least partially enhanced by the "catch up" effect of recovering from World War II related damage, although that factor clearly was not so important in the equally high-growth 1960s, long after the war's end and long after output had exceeded prewar levels.
35. Angus Maddison, The World Economy: Historical Statistics (Paris: OECD, 2003), 69, and author's calculations.
36. U.S. Bureau of the Census, Statistical Abstract of the United States: 1973 (Washington, DC: Government Printing Office, 1973), 812.
37. In the 1995-2000 period, Russia's economic growth was actually negative according to official statistics, while it has averaged about 5 percent a year since 2001. To be sure, the numbers are somewhat suspect because of a sizable underground economy in the years when tax rates were high, and because of transitional difficulties after the collapse of the Soviet Union in the early 1990s, including the Russian financial crisis of 1998.
38. The data are from the U.S. Bureau of the Census, available at http://www.census.gov. The numbers are the sum of estimates for 1990 to 1999 and 2000 to 2004, and exclude the period from July 1, 1999, to April 1, 2000. The non-income-tax states are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. The exclusion of data from July 1999-April 2000 simply reflects the fact that between decennial censuses, the Census Bureau does annual population estimates (including migration) for states as of July 1, except in the year in which the Census was taken on April 1. Thus, the data for the short 1999-2000 period are unavailable.
39. The Tax Foundation website, at www.taxfoundation.org, is a particularly good source of information on taxes in the United States. In addition to sluggish income growth, in large parts of the modern era (e.g., the early 1980s, in 2003-2005), Ohio's unemployment rate has exceeded the national average by significant amounts.
40. Karl Marx, "Wage-Labor and Capital," in Selected Works, vol. 1 (New York: International Publishers, 1933).
41. For a good discussion of utilitarian philosophy as it relates to this discussion and more specifically to Jeremy Bentham, see Joseph A. Schumpeter, History of Economic Analysis (New York: Oxford University Press, 1954), esp. 128-34.
42. For a more extended discussion, see my Taxation and Migration: Do Tax Decisions of State and Local Government Officials Impact on the Movement of People? (Cedarburg, WI: Taxpayers Network, March 2003). The Census data in question are not classified by age. Other data suggest that while it is true that the elderly migrate in moderately large numbers, an even larger group quantitatively is young adults-relatively new workers to the labor force.
43. Data were provided by the U.S. Bureau of the Census (and available via www.census.gov). Data on state and local tax burdens in 1997 (from the Census of Governments of that year) were divided by state personal income (provided by Bureau of Economic Analysis via www.bea.doc.gov) to obtain the average tax burden. The year 1997 was the mid-year in the period.
44. The classic work questioning the policy of using government fiscal policy to bring about changes in the distribution of income and wealth is Walter J. Blum and Harry Kalven, Jr., The Uneasy Case for Progressive Taxation (Chicago: University of Chicago Press, 1953).
45. U.S. Department of Labor, Bureau of Labor Statistics, Report 974, Consumer Expenditures in 2002 (Washington, DC: Government Printing Office, February 2004),
46. table 1; U.S. Census Bureau, Historical Income Tables-Households, available at http://www.census.gov/hhes/income/histinc/h02ar.html (accessed February 22, 2005).
47. See Income Mobility and the U.S. Economy: Open Society or Caste System? Joint Economic Committee of Congress, 102nd Congress, Second Session, January 1992.
48. Daniel P. McMurrer and Isabel V. Sawhill, "How Much Do Americans Move Up and Down the Economic Ladder?" Urban Institute, Opportunity in America, no. 3, 1996.
49. W. Michael Cox and Richard Aim, "By Our Own Bootstraps: Economic Opportunity and the Dynamics of Income Distribution," Federal Reserve Bank of Dallas, 1995 Annual Report, pp. 2-23;
50. Lawrence Mishel, Jared Bernstein, and John Schmitt, The State of Working America (Ithaca, NY: Cornell University Press, 2000).
51. See also Cox and Alm's book Myths of Rich and Poor: Why We're Better Off Than We Think (New York: Basic Books, 1999), esp. chap. 4.
52. Gordon Tullock, Economics of Income Distribution (Boston: Kluwer-Nijhoff, 1983).
53. For example, in 1983, after federal expenditures per capita on the poor had expanded nearly fourfold in real terms since the Great Society era, the poverty rate was higher than in 1966, before the War on Poverty had gotten far off the ground. Lowell Gallaway and I have argued that the federal government got on the wrong side of what we termed the "povertywelfare curve." See our short monograph Poverty, Income Distribution, the Family, and Public Policy, Joint Economic Committee of Congress (Washington, DC: Government Printing Office, 1986).
54. For details on poverty, see U.S. Bureau of the Census, Current Population Reports, P-60-226, Income, Poverty, and Health Insurance in the United States: 2003 (Washington, DC: Government Printing Office, 2004).
55. Author's calculations from the U.S. Council of Economic Advisers, Economic Report of the President: 2003 (Washington, DC: Government Printing Office, 2003), from tables on pp. 373 and 276. Including state and local governments in the analysis does not change the conclusion, although the decline in the relative size of government is smaller (from 30.99 percent to 30.04 percent).
56. Frédéric Bastiat, Selected Essays on Political Economy (Irvington-on-Hudson, NY: Foundation for Economic Education, 1964).
57. Richard Vedder, Lowell Gallaway, and David Sollars, "The Tullock-Bastiat Hypothesis: The Inequality-Transfer Curve and the Natural Distribution of Income," Public Choice 56 (1988): 285-94.
58. Simon Kuznets, "Economic Growth and Income Inequality," American Economic Review 45 (March 1955): 1-28.
59. A representative recent study, using Italian time series data, is Gianni Toniolo, Nicola Rossi, and Giovanni Vecchi, "Is the Kuznets Curve Still Alive? Evidence from Italy's Household Budgets, 1961-1991," CEPR Working Paper No. 2140, May 1999, available at http://papers.ssrn.com/so13/papers.cfm? abstrract_id=175468 (accessed February 22, 2005). This paper is particularly appealing in that it uses consumption data.
60. Robert M. Solow, "A Contribution to the Theory of Economic Growth," Quarterly Journal of Economics 70 (February 1956): 65-94.
61. Robert J. Barro and Xavier Sala-i-Martin, "Convergence," Journal of Political Economy 100, no. 2 (April 1992): 223-51.
62. A few representative samples from the 2002-2004 period: Gasper A. Garofalo and Steven Yamarik, "Regional Convergence: Evidence from a New State-by-State Capital Stock Series," Review of Economics and Statistics 84, no. 2 (May 2002): 316-23;
63. Leo Michelis and Simon Neaime, "Income Convergence in the Asia-Pacific Region," Journal of Economic Integration 19, no. 3 (September 2004): 470-98;
64. David Cook, "World War II and Convergence," Review of Economics and Statistics 84, no. 1 (February 2002): 131-38;
65. Frank S. T. Hsiao and Mei-Chu W. Hsiao, "Catching Up and Convergence: Long-Run Growth in East Asia," Review of Development Economics 8, no. 2 (May 2004): 223-36;
66. S. Nahar and B. Inder, "Testing Convergence in Economic Growth for OECD Countries," Applied Economics 34, no. 16 (November 2002): 2011-22;
67. and Eric Neumayer, "Beyond Income: Convergence in Living Standards, Big Time," Structural Change and Economic Dynamics 14, no. 3 (September 2003): 275-96.
68. Three recent examples: Richard Kozul-Wright and Robert Rowthorn, "Globalization and the Myth of Economic Convergence," Economic Appliquée 55, no. 2 (June 2002): 141-78;
69. Stephen M. Miller and Mukti P. Upadhyay, "Total Factor Productivity and the Convergence Hypothesis," Journal of Macroeconomics 24, no. 2 (June 2002): 267-86;
70. and Javier Andrés, José E. Boscá, and Rafael Doménech, "Convergence in the OECD: Transitional Dynamics or Narrowing Steady-State Differences?" Economic Inquiry 42, no. 1 (January 2004): 141-49.
71. On taxes and convergence, see Benjamin Russo, "Taxes, the Speed of Convergence, and Implications for Welfare Effects of Fiscal Policy," Southern Economic Journal 69, no. 2 (October 2002): 444-56;
72. see also Michelis and Neaime, "Income Convergence in the Asia-Pacific Region."
73. The tax data are from the Tax Foundation website, http://www. taxfoundation.org/statelocal70.html, and also http://www.taxfoundation.org/ statelocal03.html;
74. the income per capita data are from the website of the Bureau of Economic Analysis, U.S. Department of Commerce, at http://www.bea.doc.gov/bea/regional/ spi/drill.cfm.
75. The states were Alabama, Colorado, Georgia, Maine, Mississippi, Nebraska, New Hampshire, North Carolina, North Dakota, South Carolina, South Dakota, Tennessee, Vermont, Virginia, and Wyoming.
76. The states were Arizona, Florida, Idaho, Indiana, Iowa, Missouri, Montana, Oklahoma, Oregon, and Utah.