by Pavel A. Yakovlev
Mercatus Center
July 10, 2014
Working Paper Series
A higher average tax burden reduces state economic growth. A 1 percent increase in a state’s average tax rate is associated with a decrease of 1.9 percent in the growth rate of its gross state product (GSP). Furthermore, taxes impact migration patterns. Given the negative effect of high taxation on the economy, people move to states with better economic prospects. Of the nine states with no personal income tax, four – Florida, Nevada, Washington, and Tennessee – are among the states with the highest population growth rates in the country in recent decades. It is clear that people produce or consume less in response to higher taxes. Not all types of tax increases can be expected to significantly harm economic outcomes, but higher taxes are generally correlated with lower standards of living.

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