Governments of resource-rich states lower income taxes and restrict public expenditure in response to revenue shocks.

Two of the most resource-rich states in the US, Wyoming and Alaska, lack an income tax and also spend more per resident than any other. In new research, Alex James examines whether low tax rates and high spending are linked to states having large amounts of natural resources. He finds that when resource prices rise, state governments lower tax rates but do not tend to increase public expenditure, and that they decrease public expenditures when resource prices fall.