What Do Business Climate Indexes Teach Us About State Policy and Economic Growth?

Jed Kolko, David Neumark, Marisol Cuellar Mejia

NBER Working Paper No. 16968
Issued in April 2011
NBER Program(s):   EFG   LS   PE

State business climate indexes capture state policies that might affect economic growth. State rankings in these indexes vary wildly, raising questions about what the indexes measure and which policies are important for growth. Indexes focused on productivity do not predict economic growth, while indexes emphasizing taxes and costs predict growth of employment, wages, and output. Analysis of sub-indexes of the tax-and-cost-related indexes point to two policy factors associated with faster growth: less spending on welfare and transfer payments; and more uniform and simpler corporate tax structures. But factors beyond the control of policy have a stronger relationship with economic growth.

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This paper was revised on August 24, 2012

Acknowledgments

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