Taxation, Regulation, and Migration

At the NY Times‘ Economix blog, Ed Glaeser takes up explanations for the relative population growth enjoyed by Texas, Florida, Georgia, Arizona, and Nevada, compared to relative decline in New York, Massachusetts, and Connecticut. If we ignore international migration, which tends to increase the population of Mexican border states especially, and natural increase, then the population shift is really the result of inter-state migration. So why have people been leaving most of the Northeast and fleeing to the South and Southwest?

Glaeser notes two explanations: sunshine and public policy. People tend to leave cold states for warm states. But that fact alone can’t explain all or even most of the migration that we see. Here’s Glaeser on the policy explanation:

The commercial explanation, which has a proselytizing undertone, is that places like Texas and Nevada attract companies and people with their lower business taxes and fewer regulations… If economic productivity – created by low regulations or anything else – was causing the growth of Texas,  Arizona and Georgia, then these places should have high per capita productivity and wages. Yet per capita state product in Arizona in 2009 was $35,300, 16 percent less than the national average. Per capita state products was $36,700 in Georgia and $42,500 in Texas. These figures are far below per capita state products in slow-growing places like Connecticut ($58,500), Massachusetts ($50,600) and New York ($50,200).

His favored explanation has to do with zoning and land-use regulations that drive up the price of housing in places like California. But Glaeser should know better than to compare a snapshot of state GDPs and think that this comparison settles the question. Let’s take a look at state GDP per capita in 1963 in 2007 dollars and deflate those 2010 numbers by differences in state cost of living as of 2007, the latest available date (sources: BEA and the Berry, Fording, and Hanson state CPI):

State 1963 GDP 2010 GDP % Change
Texas $28,771 $47,774 66.0
Connecticut $29,540 $46,837 58.6
Georgia $24,703 $39,047 58.1
Arizona $26,056 $34,778 33.5
Massachusetts $30,570 $39,749 30.0
New York $36,379 $42,114 15.8

Well, that looks rather different. Texas, Connecticut, and Georgia have all done well over the last 47 years, while Arizona, Massachusetts, and New York have not, relatively speaking. In 1963, Texas and Georgia did not have growth-promoting fiscal and regulatory policies (to say the least), while New York, Connecticut, and Massachusetts did not necessarily have growth-retarding policies. Indeed, policy liberalization is one of the most obvious correlates of economic growth over the past 47 years in this small sample of states.

Now, you could say that Georgia and Arizona (especially) should have benefited from “catch-up growth” over that period, and you would be right. However, another factor to consider on the other side of the ledger is that retirees swarming to Arizona and to a lesser degree Texas and Georgia show up in the denominator of GDP per capita but not the numerator, as they are not working. Thus, sunshine states should show lower GDP per capita, all else equal.

William Ruger and I have a forthcoming edition of Freedom in the 50 States (link is to the first edition), in which we find that states with more economic and personal freedom saw more inter-state in-migration over the 2000-9 period, as a percentage of 2000 population, and that states with more economic freedom (dominated by fiscal policies) saw more personal income growth over that period. Land-use regulation very much looks like an incomplete explanation.

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