Tip:
Highlight text to annotate it
X
We were interested in studying business climate indexes for a couple of main reasons. First
of all business climate indexes are very prominent and in policy debate. And they’re really
different. So the tax and cost ones for example will rate California very poorly, very much
near the bottom of all states. Groups that want more spending in education can find indexes
that focus on education and the like and they rank California very much near the top.
So, we really wanted to understand, are these things valid, right? And what sense can we
make of the fact that if you look at one index California is third or fourth best state.
If you look at some other index, California is the forty-eighth or forty-ninth worst state.
So, we were out to understand which of these business climate indexes actually help predict
economic growth over the last 15 or so years.
There are indexes that really focus on taxes and cost. There are indexes that really focus
on education, social welfare, infrastructure and it’s not a surprise then that some indexes
rank a state like California very high and some indexes rank a state like California
very low because they’re measuring very different things. We also found though that
it’s really the indexes that focus on taxes and cost that have the most predictive power
for economic growth. We looked at about 10 or 11 indexes largely driven by where we could
actually get the data.
The ones that actually do matter for predicting economic growth are the ones that focus on
taxes and cost of doing business. That in some sense sharpens the puzzle, right? Because
then you look at California in particular. On those indexes, California does really,
really poorly, near the bottom. Yet, as I said their performance is above average.
What the research says is that the business climate does matter. But in some sense what
matters as much or even more is some of the other advantages that -- or disadvantages
that states have in California’s case, it’s generally advantages and those are climate
issues, which probably matter because they make a place more attractive to businesses,
more attractive to workers as well.
One of the things I try and do in my research is talk about public policy concerns. So,
this research of course is very much at the center of a policy debate; in particular the
debate about the business climate and how good or bad it is and what we ought to do
about it. So one thing we’re doing at UC Irvine to try to bring together research and
policy is creating a new center, which is starting this year called the Center for Economics
and Public Policy. It’s intended to bring together economists and others who are doing
research that ties together economics and public policy. It covers topics like the business
climate that I’ve been talking about. It covers labor market policy. We have people
who study transportation policy, environmental policy, law and economics. The list is quite
long.