Comment of the Day: : State-Level Fiscal Policy: "Well, yes, taxes aren't the largest factor in location decisions...
...but of that list, which can state governments fairly readily control?
As for the states mentioned, California is isolated. With colleagues, I recently published a paper showing 1. Evidence that migration patterns are influenced by differences in state income tax rates (yes, state fixed effects--ie, the weather--are in the controls) 2. The effect is muted by distance between states. California finds it easier to have high income tax rates and keep people than does New Jersey (the only state in the nation whose capital building is literally on the state border--the best views of it are from the PA side of the Delaware!)
Washington doesn't have an income tax. New York and Massachusetts have trailed the nation over the last generation. They've done better than Connecticut, New Jersey, and Pennsylvania (which, by the way, is for the Northeast a relatively low tax state--again, taxes aren't everything) but perceptions of their performance is distorted by an overfocus on some neighborhoods in Boston and Manhattan. As for New Hampshire's corporate income tax, sure, and they also have a tax on nonwage income. But this has come in long after the business came, and surely nobody is arguing that New Hampshire now has a higher tax system than Rhode Island?
Again, I am not, not, not, making any sort of Laffer Curve argument. But there is a good case to be made that tax structures affect longer-term growth rates, which means that officials should be aware of them when they are making their budgets. Lack of a dramatic short-run effect does not mean no long-run effect. The long-run effects are small in any one year, but they are likely to add up over time.
