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How Tax Rates Affect City Growth
#1
For those who think that lower taxes do not stimulate growth, there is this report from CATO Institute: Why Some Cities Are Growing and Others Are Shrinking pdf. And while it deals with individuals and the cities they live within, the principle still applies with federal taxes.

Although there are numerous factors that can influence the growth of individual economies, one finds a consistent relationship between low taxes and high economic growth in metropolitan areas, in states and in nations, says Dean Stansel, an associate professor of economics in the Lutgert College of Business at Florida Gulf Coast University.

-In the 10 highest-tax metro areas, the state and local tax burden accounted for about 12.4 percent of personal income.

-In those same areas, population grew by 21.3 percent from 1980 to 2007, employment grew by 40.1 percent and real personal income grew by 75.5 percent.

-In contrast, taxes were only 8.3 percent of personal income in the 10 lowest-tax areas. The economic growth in those areas was much faster.

-Population grew by 64.4 percent, employment by 107.6 percent and real personal income by 157.3 percent.

If high-tax, low-growth metro areas like Detroit, Milwaukee, Buffalo and Syracuse, want to be more like high-growth areas such as Dallas, Tampa, San Antonio and Austin, they should lower their onerous burden of taxation and bring spending under control, says Stansel.

And note where the most successful cities are located. Most are in Texas, or Florida, where there is no state income tax, and lower overall taxes. Is this correlation or causation?

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“Don’t confuse me with facts, my mind is made up” — Saint Al of the Gore -
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#2
Looks pretty solid...and a .4 correlation is high. (40% of the overall variation in city growth rates is explained by this factor.) The only thing I wonder is weather the growth is really sustainable...I've heard Texas schools aren't great, in at least some areas.
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#3
(07-28-2011, 03:52 AM)b5d Wrote: Looks pretty solid...and a .4 correlation is high. (40% of the overall variation in city growth rates is explained by this factor.) The only thing I wonder is weather the growth is really sustainable...I've heard Texas schools aren't great, in at least some areas.

This isn't true. 0.4 correlation needs to be squared first (R-squared). The R-squared is amount of variation in the dependent variable explained by movement in the independent variable. In this case 0.4^2 = 0.16 or 16%

I will read the PDF. But, from doing very little research, I would say the primary reasons for growth in some cities, and declines in others, are due to a number of factors. The most important of which are likely median home prices, and something a simple as climate.

This is the kind of paper that makes the entire field of ecnomics look dumb. Just look at the 10 highest tax cities vs the 10 lowest. Then place those cities on a map. What is most obvious difference? Its SNOW! I would be willing to bet that annual snowfall rate is a better independent variable.

Besides, just by looking at the scatter-plot, it looks like the standard error is likely pretty high, and the t-stat is pretty low. This paper isn't very good.
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#4
Depends on what you mean as 'sustainable'. Remember if initial growth is a certain amount, under the same conditions twice the time will not result in twice the sustained amount. There is a scientific term for this, but cannot remember.

the curve starts leveling off, and eventually reaches a plateau, just as with other things. That is why China, and India are growing so quickly, but when they reach certain points, they naturally start leveling off. Same thing with the CO2 effect. Add more CO2 into the atmosphere, and the result is less and less input into the system, until it is virtually nil.

I have "Got" to learn the name of that process and remember it, because it is so elementary, yet overlooked by almost everyone. And it is almost universal in anything it is weighed against.


But remember this, even if it is not sustainable, it gives the low tax cities( or states, or countries) a 'select' advantage over the high tax cities(or states, or countries) by getting a head start, and never looking back. As long as they don't screw with the equation and start raising taxes.

That's exactly why our Founding Fathers were the largest collection of Wise Geniuses ever assembled. They knew that federalism offered many different laboratories in which to test concepts. It's the best way to do things efficiently and with the most liberty.

But there are so many among us, who want nothing more than to trash the concept, because they just KNOW the State always knows best. And it is because of a simple thing that Bill Cosby labeled Brain Damage.

Brain Damage
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“Don’t confuse me with facts, my mind is made up” — Saint Al of the Gore -
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#5
(07-28-2011, 10:20 AM)Brooklyn Wrote:
(07-28-2011, 03:52 AM)b5d Wrote: Looks pretty solid...and a .4 correlation is high. (40% of the overall variation in city growth rates is explained by this factor.) The only thing I wonder is weather the growth is really sustainable...I've heard Texas schools aren't great, in at least some areas.

This isn't true. 0.4 correlation needs to be squared first (R-squared). The R-squared is amount of variation in the dependent variable explained by movement in the independent variable. In this case 0.4^2 = 0.16 or 16%

I will read the PDF. But, from doing very little research, I would say the primary reasons for growth in some cities, and declines in others, are due to a number of factors. The most important of which are likely median home prices, and something a simple as climate.

This is the kind of paper that makes the entire field of ecnomics look dumb. Just look at the 10 highest tax cities vs the 10 lowest. Then place those cities on a map. What is most obvious difference? Its SNOW! I would be willing to bet that annual snowfall rate is a better independent variable.

Besides, just by looking at the scatter-plot, it looks like the standard error is likely pretty high, and the t-stat is pretty low. This paper isn't very good.

So, the concept of Global Warming is one in which humans are better off? Say it Ain't so! S13

___________________________________________________________________________________________________
“Don’t confuse me with facts, my mind is made up” — Saint Al of the Gore -
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#6
(07-28-2011, 10:38 AM)John L Wrote:
(07-28-2011, 10:20 AM)Brooklyn Wrote:
(07-28-2011, 03:52 AM)b5d Wrote: Looks pretty solid...and a .4 correlation is high. (40% of the overall variation in city growth rates is explained by this factor.) The only thing I wonder is weather the growth is really sustainable...I've heard Texas schools aren't great, in at least some areas.

This isn't true. 0.4 correlation needs to be squared first (R-squared). The R-squared is amount of variation in the dependent variable explained by movement in the independent variable. In this case 0.4^2 = 0.16 or 16%

I will read the PDF. But, from doing very little research, I would say the primary reasons for growth in some cities, and declines in others, are due to a number of factors. The most important of which are likely median home prices, and something a simple as climate.

This is the kind of paper that makes the entire field of ecnomics look dumb. Just look at the 10 highest tax cities vs the 10 lowest. Then place those cities on a map. What is most obvious difference? Its SNOW! I would be willing to bet that annual snowfall rate is a better independent variable.

Besides, just by looking at the scatter-plot, it looks like the standard error is likely pretty high, and the t-stat is pretty low. This paper isn't very good.

So, the concept of Global Warming is one in which humans are better off? Say it Ain't so! S13

Every winter I wish for global warming!
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#7
I am sure the tax rate plays a role. But there are also other more significant factors. For instance, Texas has a relatively large energy ( oil ) industry, and Oil is a highly profitable sector right now. It would make sense that their rate of growth would outstrip a region which is heavily reliant on say, manufacturing, like Detroit or the rust belt for example. The age of the market also matters to some extent. A smaller area growing quickly will have a different rate than a place like NYC which is already fully developed. You can't get the sorts of growth in NYC that you see in places that have more undeveloped land and opportunity for expansion. I guess what I am saying is that there are quite a lot of factors that affect growth and economic development. A city could certainly implement foolish tax code and inhibit growth. For instance, is it wise to try and tax Amazon if they will leave your state taking 1000's of jobs along with it?
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#8
Actually, I like winter, and the snow it brings. When I was in Knoxville, I used to travel all over, mostly to Sugar Mountain, or Littlefield WV, and ski as much as possible. I loved skiing, and without mountains and cooler weather, that sport is just not possible.

But skiing in the east is not the same as places in the west, such as Steamboat, or the BIG ONE(Jackson Hole).

Now, if I lived in the SW mountains, that would be perfect. Someplace like Flagstaff, AZ, perhaps?
___________________________________________________________________________________________________
“Don’t confuse me with facts, my mind is made up” — Saint Al of the Gore -
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#9
(07-28-2011, 10:20 AM)Brooklyn Wrote: This isn't true. 0.4 correlation needs to be squared first (R-squared). The R-squared is amount of variation in the dependent variable explained by movement in the independent variable. In this case 0.4^2 = 0.16 or 16%
S6...thank you.

Quote:This is the kind of paper that makes the entire field of ecnomics look dumb. Just look at the 10 highest tax cities vs the 10 lowest. Then place those cities on a map. What is most obvious difference? Its SNOW! I would be willing to bet that annual snowfall rate is a better independent variable.
I'm going to have to defend the paper here. Look at table 4, which compares next-door cities. The authors are at least aware of the issue.

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#10
Naturally there are a host of issues that make a city attractive, and all influence the success in one way or another. But if climate was the preeminent, then Detroit, New Yawk, Baltimore, etc, would never have been the leader over a century and a half ago, when we were just coming out of the last little ice age. In other words, it was colder then than it is even now. So why were they the economic powerhouses then?

I think the economic incentive is a major one, because people live off of their wallets/incomes. If they are going to be poorer in a warmer climate, than a cooler one, then I suspect they will tend to choose living in the former, and not necessarily because it is warmer.
___________________________________________________________________________________________________
“Don’t confuse me with facts, my mind is made up” — Saint Al of the Gore -
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#11
(07-28-2011, 12:54 PM)John L Wrote: Naturally there are a host of issues that make a city attractive, and all influence the success in one way or another. But if climate was the preeminent, then Detroit, New Yawk, Baltimore, etc, would never have been the leader over a century and a half ago, when we were just coming out of the last little ice age. In other words, it was colder then than it is even now. So why were they the economic powerhouses then?

There are many reasons. One of them is all around you right now - the south is almost uninhabitable in the summer without air conditioning.

Quote:I think the economic incentive is a major one, because people live off of their wallets/incomes. If they are going to be poorer in a warmer climate, than a cooler one, then I suspect they will tend to choose living in the former, and not necessarily because it is warmer.

Economic incentives are definitely important. I just said snowfall rates would be a better at explaining the variation than tax rates. My original point was not to make a thesis. It was simply to question this paper. Like I said, If you look at the scatter plot, the points are all over the place, and the correlation is actually quite low. This does not suggest a very strong relationship.

The data the author uses suggests there are other more important x variables. In my opinion, relative housing prices would also explain more of the variation than tax rates.
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#12
JohnL Wrote:the curve starts leveling off, and eventually reaches a plateau, just as with other things.

This is called the logistic curve, or the logistic growth model. In this simplistic model, growth starts out nearly exponential, but passes its inflection point and approaches a steady state. That is why companies which want to grow worry so much about whether they have passed the inflection point; it is the beginning of the end.
Jefferson: I place economy among the first and important virtues, and public debt as the greatest of dangers. To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our choice between economy and liberty, or profusion and servitude. If we can prevent the government from wasting the labors of the people under the pretense of caring for them, they will be happy.
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#13
(07-28-2011, 05:24 PM)jt Wrote:
JohnL Wrote:the curve starts leveling off, and eventually reaches a plateau, just as with other things.

This is called the logistic curve, or the logistic growth model. In this simplistic model, growth starts out nearly exponential, but passes its inflection point and approaches a steady state. That is why companies which want to grow worry so much about whether they have passed the inflection point; it is the beginning of the end.

Ok, thanks Jt.

Now, let's see if we can find out what it is called in science. There is a term to describe how saturation of a chemical/molecule/atom affects the curve. I just cannot remember it's name. I read it in an article about two months ago, and let it skim over my brain without making a note of it. S11

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“Don’t confuse me with facts, my mind is made up” — Saint Al of the Gore -
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#14
(07-28-2011, 05:56 PM)John L Wrote:
(07-28-2011, 05:24 PM)jt Wrote:
JohnL Wrote:the curve starts leveling off, and eventually reaches a plateau, just as with other things.

This is called the logistic curve, or the logistic growth model. In this simplistic model, growth starts out nearly exponential, but passes its inflection point and approaches a steady state. That is why companies which want to grow worry so much about whether they have passed the inflection point; it is the beginning of the end.

Ok, thanks Jt.

Now, let's see if we can find out what it is called in science. There is a term to describe how saturation of a chemical/molecule/atom affects the curve. I just cannot remember it's name. I read it in an article about two months ago, and let it skim over my brain without making a note of it. S11
Point of diminishing returns?
Something to do with stiochometry?

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#15
Here's Chuck Roger's take on the same CATO study.
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“Don’t confuse me with facts, my mind is made up” — Saint Al of the Gore -
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