This senior thesis examines how state taxes impact economic growth. It specifically examines how different tax types (personal income taxes, corporate income taxes, sales taxes, and property taxes) impact state GSP growth per capita from 1997 to 2024. Previous research across US states and other countries strongly suggests a negative relationship between higher taxes and economic growth. It uses data from the US Census Bureau and the Bureau of Economic Analysis to calculate five-year interval data on each type of tax as a percentage of a state's GSP. It also uses fixed-effect and random-effects regression models, and the data prefer the fixed-effect model. It finds that property taxes have a significant and negative effect on state GSP growth per capita (for the fixed effect model) and that sales and property taxes have a significant and negative effect on state GSP growth per capita (for the random effects model). This implies that states seeking to increase economic growth could seek to lower sales and property taxes. Future research could examine whether this relationship has different effects across high- and low-income US states. This thesis was inspired by Ryan Selvidio '09, who completed an economics thesis on a similar question.
Acknowledgements: I would like to thank Ryan Selvidio '09 for inspiring me to write this thesis based on his, titled "How do different tax structures affect economic growth?"