Missouri and Tennessee are border states that resemble each other in many ways. Despite the states’ similarities, Missouri has historically been the more populous and prosperous of the two, owing in part to its size advantage and in part to historical factors. Throughout the 1900s, however, Tennessee’s population and economy have gradually caught up to Missouri’s; its population is now about 5 percent larger than its neighbor to the northwest, it has a higher per-capita GDP, and its per-capita GDP now trails Missouri’s by only a few percentage points. In order to evaluate why Tennessee’s economy has grown at a faster rate than Missouri’s, it is important to consider the impact of one of the most significant and enduring differences between the two states: macroeconomic tax policy.

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