understand the role of subnational tax policies in explaining regional growth,
we present stylized facts on U.S. state income and state-level tax policies. We
use real Gross State Products (GSP) as the indicator of economic performance in
contrast to the existing literature, which relies on Personal Income. The
results reveal an increase in per capita income disparities, and time -
persistent differences in human capital and physical capital between U.S.
states. In addition, we find that subnational tax policies vary widely between
states. Using augmented Barro regressions, we show that educational attainment,
and state-level tax policies are the key determinants in explaining the
differences between state-level economic growth. More precisely, higher corporate
income or general sales taxes significantly retard economic growth, while human
capital positively impacts state-level growth.