State Tax and Expenditure Limitations, Business Climate, and Economic Performance

The influence of state-level tax and expenditure limitations on economic performance within the framework of the state's business climate is examined using a family of parametric and nonparametric tests of subsample equivalency. An index of tax and expenditure limitation strength or restrictiveness developed by Poulson is used to test for patterns in 84 separate measures of economic performance, business vitality, and development capacity. In general, we find no evidence that tax and expenditure limitations are associated with higher levels of economic performance or business climate. There is limited evidence that tax and expenditure limitations are associated with a poorer business climate and lower economic performance in some cases.