Why Business Climate Rankings Seldom Make Sense
There are serious problems with the four business climate rankings reviewed here, partly because of problems inherent in the use of composite index numbers, and partly because they are ideologically driven and promote policies of doubtful value in creating growth. While there are ways of ranking states that can serve a useful, if limited, purpose, the four state business climate rankings reviewed here should be ignored.
The Problem with Business Climate Indexes
Is There Such a Thing as a State Business Climate?
The very concept of a business climate or overall measure of competitiveness is suspect. Read more
Rankings Are Poor Predictors of Growth
States that score higher on one index or another do not actually have better economic performance in subsequent years. Read more
Index Numbers: A Black Box Full of Mischief and Mystery
The possibilities for mischief and misdirection in the construction of a business climate index are almost unlimited. Read more
Business Climate Rankings Contradict Each Other
All four of the rankings claim to assess states’ business climate, yet there is a startling level of disagreement among them. Read more
Rankings Drive Ideological Agenda
The audience for all four of these indexes is state policy makers, and they are designed to promote a particular ideologically-driven political agenda. Read more
Alternative Measures of Business Taxes
Other approaches to measuring differences in how states tax businesses are more defensible but have their own problems.
Average Tax Levels Can Be Problematic
Business taxes as a percent of state personal income is an example of a useful summary indicator, but it has its problems. Read more
Representative Firm Models of Taxes are Often Defective
The most sophisticated approach to measuring how states tax business is to develop a representative firm model, which measures the taxes paid in each state by a series of hypothetical firms. Two recent models show promise but suffer from significant defects. Read more
The Problem with Tax Cutting as Economic Policy
All of the business climate rankings view tax cuts as a central tool of state economic policy, but there are many problems with this approach. State and local taxes don’t have much impact on economic growth, and in fact, tax cuts can undermine growth if they impede the many public investments that actually play large roles in the prosperity of a state.
The Lessons of Kansas
For advocates of income tax cutting, Kansas was to be the poster child. But the Kansas experiment has been a costly one for the children of Kansas and for workers, who have seen sub-par job growth. Read more
State and Local Business Taxes Are Not Significant Determinants of Growth
State and local taxes on business are too small a share of business costs to have a significant effect on business location. Other costs dominate most businesses’ location decisions. Read more
Tax Cuts Undermine State Investments in Productivity
Tax cuts do not pay for themselves, and come at a great cost to states. State and local tax cuts cause revenue to drop which cuts into funding of important services. Read more
Personal Income Tax Cuts will Not Boost Small Business and Entrepreneurialism
Individual income tax cuts will not boost employment in small businesses or stimulate entrepreneurial activity. Read more
Taxes Have Little to Do with People’s Decisions to Move to or From a State
Serious research consistently finds that taxes have little to do with rates of migration into and out of states. Read more
The Estate Tax Has Nothing to Do with Growth
Despite claims to the contrary, there is no reason to believe that eliminating a state’s inheritance or estate tax would help the state’s economy. Read more
Resources
Key reports relating to tax cutting as economic policy. Read more.