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1 Gerald Prante, Assessing Arizona's State Tax Policy [i] (2008)

handle is hein.taxfoundation/taxfaapd0001 and id is 1 raw text is: Assessing Arizona's State Tax Policy by Gerald Prante June 9, 2008 The State of Arizona has seen remarkable changes in its economy and demography over the past 10 years. Just from 2000 to 2007, its population increased from 5.2 million to 6.3 million. That makes it one of the fastest-growing states in the nation, continuing the trend of the 1990s when population growth was also quite rapid. The state's economy has kept pace. Arizona's real per capita GDP averaged 2.4 percent growth from 1997 through 2006, much faster than the rest of the nation, which grew at 1.9 percent annually. This is all the more remarkable because Arizona's per capita GDP figures are skewed downward by the large fraction of new residents who are low-income immigrants. The figures tell a powerful story: both labor and capital are flocking to Arizona. But why? True, the state's tax and regulatory policies are acceptable, but they certainly aren't stellar enough to be such a powerful magnet. New Hampshire's super-low tax levels steal economic development from its high-tax New England neighbors every day. That's not what's going on here, with the possible exception of a few California refugees who make a wrong turn on their way to Nevada. There are myriad factors at play. One is weather. Like the rest of the South, Arizona is benefiting from people's desire to live in warmer climates. And where the desert was once daunting, technology has made it less so. Another is the fact that along with the rest of the South and Southwest, Arizona had been below average in productivity. Areas that start off with low productivities tend to grow faster than other already high-productivity areas (Solow growth model). Despite the fact that Arizona's economy has excelled over the past couple of decades, it has slowed recently, which is also putting a strain on state and local governments. So it is still worth looking at how the state could create a better mix of tax and spending policies. The crucial questions when determining the optimal fiscal system in any region are: (1) identifying the public goods that government is in the best position to provide, (2) determining

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