The "Business Climate" and Economic Inequality
"Business climate indexes" characterize state economic policies, and are often used to try to influence economic policy debate. However, they are also useful in research as summaries of a large number of state policies that cannot be studied simultaneously. Prior research found that business climate indexes focused on productivity and quality of life do not predict economic growth, while indexes emphasizing taxes and costs of doing business indicate that low-tax, low-cost states have faster growth of employment, wages, and output. In this paper, we study the relationship between these two categories of business climate indexes and the promotion of equality or inequality. We do not find that the productivity/quality-of-life indexes predict more equitable outcomes, although some of the policies underlying them suggest they might. We do find, however, that the same tax-and-cost related indexes that are associated with higher economic growth are also associated with increases in inequality.
Neumark is Chancellor's Professor of Economics and Director of the Center for Economics & Public Policy, UCI, as well as a research associate of the NBER and a research fellow at IZA. Muz is a Ph.D. candidate in Economics at UCI. We are grateful to Marisol Cuellar Mejia for assistance with the data. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
David Neumark & Jennifer Muz, 2016. "The “Business Climate” and Economic Inequality," Review of Income and Wealth, vol 62(1), pages 161-180. citation courtesy of