State and Local Taxes and High-Wage Employment

Although the literature on the effect of taxation on economic growth is quite large, no research has been conducted that examines the differential effect of state and local taxes on the level and growth of jobs by skill level. We investigate whether interstate differences in state and local taxes have differential effects on employment by skill level and, in particular, whether low-skill and high-skill jobs could be less responsive to interstate differences in taxes than middle-skill jobs. Using a panel dataset of U.S. states for the period 1977–2012, we estimated several models of the level and share of employment. We find evidence that high-wage employment is positively and statistically significantly associated with taxes per capita, while middle-wage and low-wage employment is either negatively or not statistically significantly related to taxes per capita