ALEC-Laffer State Competitiveness Index (13th Edition) Is Out!

The webpage announces:

The empirical evidence and analysis in this edition of Rich States, Poor States illustrate which policies encourage greater economic opportunity and which are obstacles to growth. The evidence is clear that competitive tax rates, thoughtful regulations, and responsible spending lead to more opportunities for all Americans. State economies grow and flourish when lawmakers trust people, not government, to create long-term prosperity.

I’m unsure where in the actual report the empirical analysis is. All I see is this assertion on the page after page vi:

The Economic Outlook Ranking is a forecast based on a state’s current standing in 15 state policy variables. Each of these factors is influenced directly by state lawmakers through the legislative process. Generally speaking, states that spend less — especially on income transfer programs — and states that tax less — particularly on productive activities such as working or investing — experience higher growth rates than states that tax and spend more.

And yet there are no empirics reported to support these assertions. Maybe that’s because there is no robust evidence that the Economic Outlook Ranking — with Utah and Wyoming at the top and Vermont and New York last —  means anything.

In my own analysis (discussed in this post), using data through the 12th edition of Rich States, Poor States, I found the ranking has essentially no predictive power for subsequent growth, as measured by employment (dlempl) or real GDP (dlrgdp). This is shown in the table. The variable rsps is the ranking provided by Rich States, Poor States, with lower values indicating a purportedly better business environment.

ldensity Log population density
wet Precipitation (less precipitation = higher values)
mild Temperature extremes (less extreme = higher values)
distance Proximity to water (closer = higher values)

These variables are from Kolko et al. (2013), as provided by Professor Neumark.

Notice that the RSPS rank is not significant, regardless of specification.

One might argue that the impact should be assessed over a longer horizon; however, using a 3 year horizon, neither employment and GDP growth exhibit a robust relationship with the Rich States, Poor States ranking.

You can conduct your own analysis with the data here (Stata .dta file), although I have not included 2019 data on employment and GDP, nor have I included the latest rankings from Rich States, Poor States. However, I am quite confident that you will fail to find a robust relationship between the ALEC-Laffer index and growth.