Wednesday, January 23, 2008

Lower taxes lead to population growth

Wendell Cox, Peter Gordon, and Christian Redfearn have an interesting article in the new issue of Econ Journal Watch in which they refute Baum-Snow's conclusion that highways caused suburbanization. From Baum-Snow's abstract:

Between 1950 and 1990, the aggregate population of central cities in the United States declined by 17 percent despite population growth of 72 percent in metropolitan areas as a whole. This paper assesses the extent to which the construction of new limited access highways has contributed to central city population decline. Using planned portions of the interstate highway system as a source of exogenous variation, empirical estimates indicate that one new highway passing through a central city reduces its population by about 18 percent. Estimates imply that aggregate central city population would have grown by about 8 percent had the interstate highway system not been built.

As far as I can tell, Baum-Snow did not correct for local taxes, which is likely be a more important driver of population growth. For instance, Suitably Flip looks at state tax rankings from the Tax Foundation and population growth from the Census Bureau. He finds that lower taxes (especially on property) lead to population growth:

The trend is obvious even though this represents only one year of data (July 1 2006 -July 1 2007). I imagine the relationship is even stronger and more significant when looking at longer time periods.

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