Tornado Alley (PROG)

[StephanieVanbryce]

More Laffering

May 25, 2012, 11:55 am

I gather that one of the things we may be talking about tonight on Bill Maher is Art Laffer’s claim that low state tax rates are the key to economic growth. What should you think about that claim? That’s easy: it’s junk economics (pdf). [ http://www.itepnet.org/pdf/junkeconomics.pdf ] See the data in the linked piece.

And if you want to discount ITEP as a liberal source — which you shouldn’t, because they do very good, careful work — try reading Ed Glaeser, who happens to be a Republican, but says that warm weather and easy land-use policies — not taxes — drive rapid growth in some states. Or read the comprehensive study (pdf) by Jim Alm — also, I believe, fairly conservative — which tells us the following:

The results indicate that the correlation between state (and state and local) taxation policies is often statistically signicant but also quite sensitive to the specic regressor set and time period; in contrast, the eects of expenditure policies are much more consistent. Of some interest, there is moderately strong evidence that a states political orientation has consistent and measurable eects on economic growth; perhaps surprisingly, a more \conservative” political orientation is associated with lower rates of economic growth.

So why is this junk research getting so much attention from the Wall Street Journal, right-wing think tanks, etc.? Hmm. Seems deeply mysterious. Is there any possibility that these people are always looking for new excuses to cut taxes on the wealthy? Nah.

references

Human Capital Follows the Thermometer
By EDWARD L. GLAESER
http://economix.blogs.nytimes.com/2011/04/19/human-capital-follows-the-thermometer/

Jim Alm — http://econ.tulane.edu/RePEc/pdf/tul1107.pdf

http://krugman.blogs.nytimes.com/2012/05/25/more-laffering/