Mary O’Keeffe (Union College), Does “Business Tax Climate” Affect Entrepreneurship?:

The horizontal axis in the graph above shows the “State Business Tax Climate Index” computed by the Tax Foundation. As you move from left to right on the horizontal axis, the Tax Foundation asserts that the tax climate gets more and more business-friendly.

The vertical axis in the graph above shows the State Entrepreneurship Index, computed by the University of Nebraska-Lincoln’s Bureau of Business Research (UNL-BBR), recently featured in an article in Bloomberg Business Week. …

States near the top of the graph above (plotted in green) had the highest levels of entrepreneurship, while states near the bottom (plotted in red) had the lowest levels of entrepreneurship.

My own state of New York is at the top left corner of the graph–tops in entrepreneurship, but worst in “business friendly tax climate.” …

As you can see, there are many factors other than business tax climate that affect entrepreneurship, but–if there is any relationship at all–it appears to be a negative one. The correlation coefficient between the tax climate index and the entrepreneurship is -.13. Thus, on average, the more “business friendly” the tax climate, the lower the entrepreneurship index in the state. … [T]here is no evidence that states with business friendly tax systems (as measured by the Tax Foundation) encourage entrepreneurship (as measured by the UNL-BBR). Other factors appear to be more important.