Do conservative economic policies work at the state level? Leftists oftentimes like to prove that conservative economic policies dont work by looking at cherry-picked data. For example, leftists keep saying that California has fast employment growth, and a more conservative state like Kansas has slow employment growth. Supposedly, this proves that conservative economic policies dont work and liberal economic policies do. Of course, this is nonsense. In order to examine how specific policies affect employment growth, or economic growth, one must account for other variables which affect economic growth, examine the direction of causality, etc. Plus, no relationship can be derived from a few data points, one has to look at large data sets. So, what does in depth academic research have to say about conservative economic policies? Lets look at the evidence, according to: Federal Reserve Bank of St. Louis (2010): We find that states with greater economic freedom – defined as the protection of private property and private markets operating with minimal government interference – experienced greater rates of employment growth. [1] Heller and Stephenson (2014): After controlling for a variety of state-level characteristics, the results from most specifications indicate that economic freedom is associated with lower unemployment and with higher labor force participation and employment-population ratios [2] Neumark, Salas, and Wascher (2013), review of research on minimum wage: We conclude that the evidence still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others, and that policymakers need to bear this tradeoff in mind when making decisions about increasing the minimum wage. [3] Ashley and Sobel (2008): ...the findings suggest that reductions in both state minimum wages and tax burdens would be the most helpful in promoting higher levels, growth rates, and shares of income for the lowest quintile. [4] Yokovlov (2014): “The analysis of multiple indicators reveals that higher state taxes are generally associated with lower economic performance. [5] Tae-hwan Rhee (2012): After controlling for the average tax rate and state/year fixed effects, I find that the current year’s income tax progressivity has a strong negative effect on the annual growth rate of real gross state product 3 years later...This suggests that there does exist a negative relationship between income tax progressivity and macroeconomic growth [6] These are just a few studies which show that less government intervention in the economy leads to greater economic growth and employment growth. Citations: [1] research.stlouisfed.org/wp/2010/2010-006.pdf [2] onlinelibrary.wiley/doi/10.1111/coep.12031/full#b16 [3] nber.org/papers/w18681 [4] be.wvu.edu/phd_economics/pdf/06-08.pdf [5] mercatus.org/sites/default/files/Yakovlev-State-Economic-Prosperity.pdf [6] aei-ideas.org/2013/01/study-making-a-tax-code-more-progressive-hurts-economics-growth/
Posted on: Wed, 29 Oct 2014 16:00:01 +0000
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