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

John Hood
Apr. 15th, 2014
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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.

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

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