Regulation

Arizona Policies Hobble State's Prosperity

If you make the state unattractive, money will go elsewhere

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During the recent recession, the experience of Texas provides a marked contrast to that of Arizona. Arizona's gross domestic product (GDP) fell at more than double the rate in the nation while Texas's GDP barely fell at all. Texas's employment in 2011 was at an all-time high and even greater than in 2007; by contrast, Arizona's total employment in 2011 was 10 percent below its peak. Although most of the nation has seen hard times like Arizona has since 2007, Arizona's economic challenges did not begin with the Great Recession. In fact, Arizona's inflation-adjusted per capita income has lagged the nation's for decades and stands steady at around 87 percent of the national level. While Arizona's per capita personal income growth was fifth lowest among the states, Texas's was seventh highest despite a large influx of people without jobs.

Arizona performs poorly because it taxes and regulates as if it were a state with natural advantages that can absorb bad public policy. In a comparison of several economic policy indexes between Arizona and its six neighbor states, Arizona outranks only California and New Mexico. These policy indexes include measures of economic freedom, business friendliness, tax systems and burdens, and cost of living. Texas ranks first in one measure, ranks second in two measures, and receives eight top-10 rankings.