STATE INCOME-TAX ADOPTION AND ECONOMIC-GROWTH

Objective. In recent years political scientists and economists have contentiously debated the effects of income taxation on economic growth, particularly income taxation by states in a competitive federal system. This article seeks to identify whether states adopting a personal income tax experienced less growth in personal income than those states not taxing income. Methods. A pooled cross-sectional time series analysis of the U.S. states from 1950 to 1989 is used to examine the effects of tax adoption on per capita income. Results. The findings indicate that, while national economic conditions were the most important determinant of state economic growth, adoption of an income tax had a significant negative effect on state personal income. Conclusions. The results reported here shift the burden of proof to those who argue that the adoption of state income tax has no disincentive effects on personal income growth.