Spotlight Report

Lower Taxes, Higher Growth: Scholarly Research Reveals Economic Benefits of Fiscal Restraint

posted on in Economic Growth & Development, Spending & Taxes
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During the Great Recession and its aftermath, few issues in North Carolina politics have been as contentious as fiscal policy. According to a literature survey of recent studies examining the relationship between public policy and economic performance at the state and local level, it is clear that the policy preferences of fiscal conservatives have strong empirical support. Most studies find that lower levels of taxes and spending, less-intrusive regulation, and lower energy prices correlate with stronger economic performance. Most studies also find that the quantity and quality of infrastructure and the level of educational attainment are linked to economic performance. However, that doesn’t necessarily mean that raising taxes to fund more spending on infrastructure and education will prove to be a good investment, since the relationship between government spending and outcomes is not particularly strong.
For state and local officials, this suggests a strategy for promoting economic growth in both the short term and the long term that includes:
• Keeping overall tax and regulatory burdens as low as possible.
• Spending more tax dollars on public safety and the courts.
• Increasing the productivity of current taxpayer spending on infrastructure and education programs.
These implications of academic research on economic growth closely track with recent public policies adopted in North Carolina. Judging from the available empirical evidence, North Carolina’s new policy mix is likely to result in stronger economic growth in the coming years.

Spotlight 452 Lower Taxes, Higher Growth: Scholarly research reveals economic benefits of fiscal restraint

John Hood joined the Pope Foundation as president in January 2015. He is the former President and current Chairman of the John Locke Foundation. Hood helped found JLF in 1989 with the support of the… ...

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We are North Carolina’s Most Trusted and Influential Source of Common Sense. The John Locke Foundation was created in 1990 as an independent, nonprofit think tank that would work “for truth, for freedom, and for the future of North Carolina.” The Foundation is named for John Locke (1632-1704), an English philosopher whose writings inspired Thomas Jefferson and the other Founders.

The John Locke Foundation is a 501(c)(3) research institute and is funded solely from voluntary contributions from individuals, corporations, and charitable foundations.