Do Lower-Taxing States Grow Faster? No.

August 5th, 2010

Following up on yesterday’s post comparing state tax rates and prosperity (answer: higher-taxing states are more prosperous [or vice versa. <g>]), I wondered about the same comparison with prosperity growth.

Again I used median household income, because it’s a good measure of widespread prosperity, a.k.a. The American Dream.

Here’s the story:

In aggregate, there’s no discernible difference between growth rates for low- and high-taxing states, despite quite large differences in taxation levels. The correlation is -.03. That yields a two-tailed p value of .85, meaning that there’s 85-in-100 odds that the (tiny) correlation is just random chance.

As usual, this is just one slice of the data, analyzed in one way. It’s only worth paying attention to because it sings exactly the same song as dozens of other slices, analyzed dozens of other ways.

Update 8/16: To see the correlations for many more periods, click here.

  1. Iyer
    August 15th, 2010 at 21:45 | #1

    If you plot the trends of median income vs. state taxes from 1998 to 2006 (2007-8 were unusual years in terms of economy) You see a clear trend .. dont have a P-value for that though. Could you repost with trend data from 2006-1998 with the P-value?

  2. August 16th, 2010 at 20:20 | #2
  3. Erik
    September 22nd, 2010 at 11:13 | #3

    Sure, but the residents got to keep more of their earnings and therefore do earn more! Unless thats included in the data set.

  4. September 23rd, 2010 at 11:30 | #4

    That assumes that the services that government provides have no value.

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