Working Paper: NBER ID: w20260
Authors: David Neumark; Jennifer Muz
Abstract: "Business climate indexes" characterize state economic policies, and are often used to try to influence economic policy debate. However, they are also useful in research as summaries of a large number of state policies that cannot be studied simultaneously. Prior research found that business climate indexes focused on productivity and quality of life do not predict economic growth, while indexes emphasizing taxes and costs of doing business indicate that low-tax, low-cost states have faster growth of employment, wages, and output. In this paper, we study the relationship between these two categories of business climate indexes and the promotion of equality or inequality. We do not find that the productivity/quality-of-life indexes predict more equitable outcomes, although some of the policies underlying them suggest they might. We do find, however, that the same tax-and-cost related indexes that are associated with higher economic growth are also associated with increases in inequality.
Keywords: Business Climate; Economic Inequality; Economic Growth; State Policies
JEL Codes: H71; J38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tax-and-cost related indexes (H29) | economic growth (O49) |
| tax-and-cost related indexes (H29) | income inequality (D31) |
| economic growth (O49) | income inequality (D31) |
| tax-and-cost related indexes (H29) | 50-10 income differential (J31) |
| tax-and-cost related indexes (H29) | 90-10 income differential (D31) |
| economic growth (O49) | 50-10 income differential (J31) |
| economic growth (O49) | 90-10 income differential (D31) |