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Rethinking growth, tax flight Essay Example

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Rethinking growth, tax flight

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Study done in 1989 also concludes that business incentives do not necessarily create jobs; jobs are not lost in absence of tax incentives from one state to another. In recent times, in the survey of 2002, Peters and Fisher discovered that taxes do not significantly influence economic growth in the region. There is a substance in Wasylenkos argument that when taxes are reduced, the resulting revenue loss affects quality and quantity of public services. That is certainly not a pleasant situation for anyone in the sense that it causes considerable negative impact on the local economy. Bartik too asserted that any tax reduction would eventually reduce the activity level of public services that in turn, would cause lesser business activity. The reason lies in lesser revenue collection that will force authority to reduce public expenditures and even public sector jobs. The argument that tax cuts lower the quality and quantity of public services and force firms to leave is valid in the sense that firms that get attracted to the state due to its superior public services and in absence of that firms would prefer to move out. For high-skilled labor enhanced public services is a prerequisite to stay in the state while tax cuts will fail to meet that requirement. Moreover, econometric research also suggests that tax reduction fail to create jobs in a cost-effective manner (Lynch).Again, there is a big fallacy in the supply-side argument, which states that tax cuts will lead to increase in savings causing more economic activity. In reality, tax cuts result into only a small increase in individual savings as suggested by Heckman and that does not become a criterion for businesses to move when states fail to fulfill other essential needs of businesses that include improved infrastructure, transportation and security (Lynch).Similarly, demand-side theory does not hold true when it argues that tax cuts can create jobs and enhance economic activity. Government spending is usually directed towards public welfare services. Moreover, unlike the federal government states cannot finance public services program through borrowings so reduction in their spending is bound to follow after any tax cuts (Lynch).It is wrong to believe that migration is strongly influenced by state tax rates. Between 2001 and 2010, merely 1.7 percent of US population migrated from one state to another per year. Moreover, only 30 percent of the people of the US migrate from one state to

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