The Goldwater Institute has released a new study showing that states with a larger share of entrepreneurs do a better job at reducing poverty than states with fewer entrepreneurs.
There is a strong connection between a state’s rate of entrepreneurship and declines in poverty. Statistical analysis of all 50 states indicates that states with a larger share of entrepreneurs had bigger declines in poverty. In fact, comparing states during the last economic boom—from 2001 to 2007—data show that for every 1 percentage point increase in the rate of entrepreneurship in a state, there is a 2 percent decline in the poverty rate.
To help reduce poverty, policymakers should focus on increasing the number of entrepreneurs in their state. Research shows that one of the most effective ways to increase entrepreneurship is by lowering tax burdens. In particular, this study shows that high tax burdens, measured as a percentage of personal income, drags down the growth rate of entrepreneurship in a state: for every 1 percentage point increase in the tax burden, there’s a corresponding 1 percentage point drop in the entrepreneurship rate. States without income taxes also have higher average rates of entrepreneurship than those with income taxes. The average number of sole proprietors as a percentage of employment in states without an income tax is 21.7. The rate for states with an income tax is 19.6.
You can access a PDF of the report here.