Working Paper: NBER ID: w16968
Authors: Jed Kolko; David Neumark; Marisol Cuellar Mejia
Abstract: State business climate indexes capture state policies that might affect economic growth. State rankings in these indexes vary wildly, raising questions about what the indexes measure and which policies are important for growth. Indexes focused on productivity do not predict economic growth, while indexes emphasizing taxes and costs predict growth of employment, wages, and output. Analysis of sub-indexes of the tax-and-cost-related indexes point to two policy factors associated with faster growth: less spending on welfare and transfer payments; and more uniform and simpler corporate tax structures. But factors beyond the control of policy have a stronger relationship with economic growth.
Keywords: business climate indexes; state policy; economic growth; employment; taxes; welfare
JEL Codes: H2; H5; J21; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| txcst1 (Y60) | Employment Growth (O49) |
| txcst5 (Y20) | Employment Growth (O49) |
| Corporate Income Tax Structure (H25) | Wage Growth (J31) |
| Corporate Income Tax Structure (H25) | GSP Growth (F62) |
| Welfare and Transfer Payments (I38) | Economic Growth (O49) |
| Industry Composition (L69) | Economic Outcomes (P47) |
| Weather (Q54) | Economic Outcomes (P47) |
| Proximity to Navigable Water (L95) | Economic Growth (O49) |
| Business Climate Indexes (E69) | Economic Growth (O49) |