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The following equation represents the effects of tax revenue mix on subsequent employment growth for the population of counties in the United States:
growth = ß0 + ß1 share P + ß2 share I + ß3 share S + other factors,where growth is the percentage change in employment from 1980 to 1990, share P is the share of property taxes in total tax revenue, share I is the share of income tax revenues, and share S is the share of sales tax revenues. All these variables are measured in 1980. The omitted share, share F, includes fees and miscellaneous taxes. By definition the four shares add up to 1. Other factors would include expenditures on education, infrastructure, and so on (all measured in 1980).
(i) Why must we omit one of tax share variables from the equation?
(ii) Give a careful interpretation of ß1
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