STATE FISCAL STRUCTURE AND ECONOMIC-DEVELOPMENT POLICY

This essay adds a new dimension to the debate concerning taxes and bus iness location decisions by raising a simple, but perhaps underappreci ated point concerning political implications of state and local fiscal structure for state economic development policy. Low taxes may well b e attractive to business owners and their employees; however, a fiscal structure that is not incentive-compatible with economic expansion ma y end up frustrating public policies of all types aimed at promoting g rowth. Economic growth may be seen as increasing demands for public se rvices, thereby placing upward pressure on tax rates faced by the orig inal taxpayers. In Wyoming, this problem is compounded because the tax base is narrow and highly income inelastic and the incidence of taxes levied falls significantly on out-of-state residents who do not benef it from public services provided. Additionally, prospects for reducing the mismatch between taxpayers and public service beneficiaries appea r to be limited because, quite understandably, state residents do not wish to pay more for public services for which they have historically paid cents on the dollar.