Recent analysis indicates that the relationship between higher taxes and lower economic growth in the states remains strong. Excise taxes lead to economic loss for higher tax states for three key reasons. First, there is a loss in business revenue and employment in the state with higher taxes as residents cross borders to make their purchases. As jobs are lost, so are employees' wages, salaries, and benefits. Along with this lost income, the state's economy loses the induced effects that this income would have provided.
Induced effects occur as retail and wholesale employees spend their wages within the state.
These economic benefits are transferred to the lower-tax state. Through tax revenues and induced effects, cross-border activity can have an impact on a state's entire economy. A second reason for economic loss is what might be seen as subsidiary sales losses. As residents engage in cross-border activity, they may also purchase other items. That is, a resident who stops to purchase gasoline in a neighboring lower-tax state may also buy other items.