A MATCHED PAIRS ANALYSIS OF STATE GROWTH DIFFERENCES

• Published in: Contemporary economic policy Vol. 30; no. 2; pp. 293 - 305
• Main Authors: GOFF, BRIAN, LEBEDINSKY, ALEX, LILE, STEPHEN
• Format: Journal Article
• Language: English
• Published: Oxford, UK Blackwell Publishing Ltd 01-04-2012; Western Economic Association International; Blackwell Publishers Ltd; Western Economic Association
• Series: Contemporary Economic Policy
• Subjects: Capital; Capital productivity; Capital stock; Criteria; Economic development; Economic growth; Economic policy; Estimating techniques; Federal states; Growth models; Human capital; Income taxes; Laboratories; Local taxes; Personal income tax; Regional economics; States; Studies; Tax incidence; Tax rates; Taxation; U.S.A; United States; United States > US
• ISSN: 1074-3529; 1465-7287
• DOI: 10.1111/j.1465-7287.2011.00258.x

The American states have provided a rich laboratory in which to examine influences on economic growth, physical capital, human capital, and a variety of policy variables. Existing studies typically use broad cross sections of all states or particular regional subsamples. Pairwise matching is an alternative design for better controlling of omitted variables. We estimate a growth model of U.S. states for 1997–2005 before and after applying different pairwise matching techniques. Our results indicate that sample estimates based on pairwise matching substantially improve the overall ability of the growth model to identify the growth‐enhancing effects of lower tax burdens in general and lower individual income‐tax rates in particular. These effects are more pronounced with narrower matching criteria. (JEL H00, C29, O40)