Taxation of Natural Resources and State Economic Growth

The econometric evidence that has been brought to bear on the question of how state and local taxes affect the location decision of firms among competing states or regions is surprisingly sparse and often contradictory. In this research the question is addressed from a different empirical perspective than has been considered heretofore. Using a pool of cross-section and time-series data, the trends in employment and capital formation in three energy-rich states are analyzed during a period when these states substituted energy-related revenues for more traditional forms of taxation. McLure's general equilibrium model of regional taxation and industrial location forms the theoretical basis for the empirical analysis. The findings suggest that relative changes in state and local taxes on products and labor are of more significance as a location determinant than relative changes in the state corporate income tax.