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From 2002 through 2012, compared with its surrounding states Arkansas saw less growth in the real dollar value of manufacturing, a greater decline in manufacturing’s share of gross domestic product, and a faster rate of job loss in manufacturing. One reason for these outcomes is manufacturing’s slow growth in labor productivity, which is defined as growth in the dollar value of output per manufacturing employee, adjusted for inflation. This study ex-amines the relationship between state and local taxes and labor productivity in manufacturing. It is found that total state and local tax burdens reduce output per manufacturing employee, primarily through sales and corporate income taxes. Legislators across all states should con-sider the distortionary effects of taxes when making tax-policy decisions because those deci-sions will influence not only manufacturing productivity, but also the rate of economic growth.


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