The Bear and the Bull: A Comparative Study of Public Policy and Economic Growth in California and Texas

In the last quarter century, California state governance has been popularly perceived as gridlocked, misguided, and overrun by interest groups opposed to both population and economic growth. By contrast, the Texas government has consistently reaffirmed its commitment to low taxes, minimal regulation, and a business-friendly climate. This divergence crystallized in the wake up the 2008-09 global financial crisis, where California’s growth rate fell sharply while Texas felt the recession’s impact more mildly and recovered quickly. Because of their similarities in size, power, and demographics, comparing the two states is well-covered ground. Nevertheless, most comparisons employ a “scorecard” method where components of public policy--state finance, taxation, and regulation--are held in isolation and a “winner” is selected. Such studies are generally not informed by academic research that evaluates the actual correlation between these elements of public policy and economic growth. Concurrently, economic research is usually conducted in the abstract and neglects to evaluate individual states with regard to their policies. This paper seeks to integrate a detailed accounting of economic literature on subnational economic growth with a holistic comparison of Texas and California. I find that while California suffers from a variety of challenges, empirical support for “Texas-style” policies as necessary for state-level economic growth is relatively weak. Thus, I conclude that California’s return to prosperity is not dependent on adopting such policies