AUSTIN, Texas – How strong is the relationship between Texas' economic growth and its tax burden? Numerous studies from the United States and around the world indicate it is stronger than anyone may have previously believed.

In a new study released today by the Texas Public Policy Foundation, acclaimed economist Richard Vedder, Ph.D., finds that international scholarship has concluded that lower tax burdens lead to greater economic growth and prosperity.

"In fact, several decades of studies by economists confirm the proposition that the higher the level of taxation, the lower the rate of economic growth," said Vedder.

Among several dozen other scholars and studies, Dr. Vedder cites the work of the National Bureau of Economic Research president Martin Feldstein of Harvard concluding that "the deadweight burden caused by incremental taxation… may exceed one dollar per dollar of revenue raised, making the cost of incremental government spending more than two dollars for each dollar of government spending."

Vedder notes that "there is mounting evidence that high taxes reduce job opportunities and sometimes lead to higher unemployment." On the other hand, a lower tax burden can stimulate high rates of individual income growth, he said.

"Personal income rose by 315 percent from 1957 to 1997 in low-tax states, compared with only 268 percent in the high-tax ones," Vedder concludes from his own study of economic data.

Dr. Vedder finds three key rules for crafting a growth-oriented state fiscal policy:

  • It would stress general tax relief for the entire citizenry rather than targeted tax abatements or other subsidies for specific businesses.
  • It would emphasize public investment such as highways and parks, rather than entitlement or income maintenance programs.
  • Finally, it would minimize business governmental regulation and keep a rein on unemployment and worker compensation costs.