Issac Bailey blog | Report shows push by S.C. and other states for better ‘business climates’ maybe increasing inequality

Posted on July 17, 2014 

Issac Bailey

STEVE JESSMORE

Something to think about the next time you hear Gov. Nikki Haley and governors of other states (red and blue) brag about their strong “business climates,” which usually mean more business incentives, less regulation and lower taxes for corporations, even if it results in the poor having a higher effective tax rate than the rich:

That combination of policies may make for chest-thumping press releases but also maybe increasing inequality, in other words, it might be great for those already in the most fortunate circumstances but bad for those trying to climb up the economic ladder.

From the report:

The big takeaway: There is a clear connection between economic inequality and low-tax, low-cost state business climates (or, more accurately, business climate indexes based on those factors). As they put it: “The same tax and cost related indexes that are associated with higher economic growth are also associated with increases in inequality.”

Neumark and Muz found a more ambiguous relationship between inequality and “quality of life” factors, discovering “little consistent evidence that policies captured by productivity/quality of life indexes are associated with moderate economic inequality.” They note that this does not mean such policies are associated with less inequality; instead, their findings suggest that policies that seek to improve a state’s quality of life won’t necessarily lead to a reduction in inequality.

The researchers qualify their findings, noting that they are based on business climate indexes that strive to capture broad policy strategies and approaches, as opposed to rigorous causal analyses of specific state policies. Still, they conclude that their findings may still be of considerable value given that state and local policy makers—not to mention voters and citizens—tend to think in terms of and make decisions based upon these broader characterizations.

Read more here.

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