Economic competitiveness and taxes
ISSN: 1059-5422
Article publication date: 20 June 2022
Issue publication date: 3 August 2023
Abstract
Purpose
The purpose of this paper is to determine whether the way competitiveness is measured matters, as well as to analyze the relationship between tax burden and economic competitiveness using a variety of model specifications.
Design/methodology/approach
This paper uses statistical models aimed at finding the relationship between taxes and different measures of economic competitiveness, such as gross domestic product per capita, employment and a third-party competitiveness index. Other variables are also considered, and statistical procedures such as lag specifications and “white period” errors are used to address problems of endogeneity and serial correlation.
Findings
The models find no robust relationship between taxes and competitiveness. Certain models find correlations between the tax burden of specific income groups with economic competitiveness, but these vary in direction and are difficult to interpret. This follows past research, which shows different results depending on the period analyzed, measure of competitiveness and other variables used.
Originality/value
This paper looks at many of the different measures of competitiveness, control variables and periods that are used in the previous literature and shows how any changes to these model specifications cause inconsistent results. This paper highlights that, because results can vary greatly depending on the model, researchers and policymakers must be careful when drawing any conclusions from relationships between taxes and economic competitiveness.
Keywords
Acknowledgements
This report relies on work done as part of an interagency agreement between the Washington State Department of Revenue (DOR) and Western Washington University (WWU), put into place in accordance with the Washington State Legislature. The direction was provided in a budget proviso and can be found in ESHB 1109. WA DOR provided funding of US$1,500 upon completion of the initial research.
DOR and WWU agree all data and work products (collectively called “work product”) produced pursuant to the Interagency agreement shall be considered work made for hire under the US Copyright Act, 17 U.S.C. sect. 101 et seq, and shall be owned by both DOR and WWU.
Doug Conrad (University of Washington), staff at DOR and staff at EcoNorthwest provided invaluable comments and feedback on earlier drafts of this report.
Citation
Hodges, H. and Anderson, B.F. (2023), "Economic competitiveness and taxes", Competitiveness Review, Vol. 33 No. 5, pp. 939-958. https://doi.org/10.1108/CR-08-2021-0105
Publisher
:Emerald Publishing Limited
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