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Guest Lecture: Professor Bob ReedEmpirical Issues in Identifying the Relationship Between Taxes and Economic Growth

Page updated 20 Sep 2007

Slides and abstract from Professor Bob Reed's Guest Lecture presented at the Treasury on 20 June 2006.

Professor Bob Reed

University of Canterbury

Professor Reed received his Ph.D. from Northwestern University in 1985. He has taught at Texas A&M University, the University of Texas at Austin, and the University of Oklahoma. He joined the faculty at the University of Canterbury in June 2006. Professor Reed has published in the areas of labor economics, public choice, and public finance. His work has appeared in numerous professional journals, including the Cato Journal; Economic Inquiry; Economics and Politics; Journal of Human Resources; Journal of Labor Economics; Journal of Labor Research; Journal of Law, Economics, and Organization; Journal of Political Economy; Journal of Population Economics; Journal of Public Economics; Journal of Urban Economics; Public Choice; Public Finance Review; Regional Science and Urban Economics; Social Science Quarterly; and the Southern Economic Journal. His current research focuses on the relationship between taxes and economic growth.

Abstract

Policy makers have a keen desire to know how taxes affect the economy. Accordingly, there exists a demand for answers to questions like the following, "Suppose income tax rates are cut 10%, what would be the expected consequences for national income and employment?" Despite a great deal of research effort on this topic, the literature is characterized by considerable ambivalence. In this lecture, I will discuss some of the reasons for this state of affairs. Attention will be given to issues inherent in (i) identifying causation from correlation, (ii) selecting the appropriate model to estimate, and (iii) using the estimation procedure that is best suited to produce the correct answer. In each case, I will discuss the problems in a non-technical fashion, and then survey recent research that holds promise for resolving these issues. While the issues are valid across political jurisdictions, my discussion will focus on taxes and economic growth in U.S. states.

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