Introductory Econometrics: A Modern Approach 6th Edition by Jeffrey M Wooldridge

Exercise 8

States (and provinces) that have control over taxation sometimes reduce taxes in an attempt to spur economic growth. Suppose that you are hired by a state to estimate the effect of corporate tax rates on, say, the growth in per capita gross state product (GSP).

(i) What kind of data would you need to collect to undertake a statistical analysis?

(ii) Is it feasible to do a controlled experiment? What would be required?

(iii) Is a correlation analysis between GSP growth and tax rates likely to be convincing? Explain.

Step 1 of 4

States (and provinces) that have control over taxation sometimes reduce taxes in an attempt to improve economic growth.