CSLF affiliate and former Fiscal Research Center director, David L. Sjoquist, has published a new CSLF working paper with Sohani Fatehin, visiting assistant professor at Dickinson College in Carlisle, Pennsylvania. The authors investigate the relationship between state and local taxes and high-wage employment.
Although the literature on the effect of taxation on economic growth is quite large, no research has been conducted that examines the differential effect of state and local taxes on the level and growth of jobs by skill level. The authors investigate whether interstate differences in state and local taxes have differential effects on employment by skill level and, in particular, whether low-skill and high-skill jobs could be less responsive to interstate differences in taxes than middle-skill jobs.
Using a panel dataset of U.S. states for 1977–2012, Sohani and Sjoquist estimated several models of the level and share of employment and found evidence that high-wage employment is positively and statistically significantly associated with taxes per capita, while middle-wage and low-wage employment is either negatively or not statistically significantly related to taxes per capita.