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The Effect of State Corporate Income Tax Rate Cuts on Job Creation
Abstract
This paper compares the employment growth of states that enacted corporate income tax rate cuts in the past 23 years with those making no changes. Overall employment comparisons from 1990 to 2012 suggest that a reduction in the corporate income tax rate is associated with faster job creation. The states that cut corporate income tax rates started with slower employment growth than the states that made no changes. However, the growth gaps between the two groups of states disappeared in about five years after the tax cuts were made. Regression results confirm the observation that lower corporate tax rates have a significant and positive effect on employment growth. The enactment of a tax rate cut also has the additional but temporary benefit of promoting job creation as businesses adjust to the new tax rate. However, this benefit is temporary and only occurs during first year of the enactment of a tax cut.
... There are many studies investigating the effects of public policies such as tax or investment incentive programs. As we discussed in our study, some of them are also focused on tax policies (Giovanis et al. 2021;Hazman and Büyükben, 2020;Turner and Blagg, 2018;Ranchhod and Finn, 2016;Ljungqvist and Smolyansky,2014;Shuai and Chmura, 2013), while the others investigate the investment effects (Öz and Buyrukoğlu, 2017;Selim et al., 2014;Yavuz, 2010;Akan and Arslan, 2008;Bondonio and Greenbaum;2006;Schalk and Untiedt, 2000). Many of the studies focus on the effects of policies on employment, in common. ...
... The studies by Shuai and Chmura (2013) and Ljungqvist and Smolyansky (2014) bear resemblance to our study. Ljungqvist and Smolyansky (2014) conducted an analysis of the effects of changes in corporate income tax rates in the USA between 1969 and 2010 on employment and wages. ...
... The findings indicate that this implementation is effective in improving the employment status of individuals residing in Region 6. The findings of the study are in line with other former studies (Ljungqvist and Smolyansky, 2014;Shuai and Chmura, 2013), which also investigate the effects of regional differences in corporate income tax reductions on employment. According to the findings, it is verified that the reduction in the corporate tax rate affects the employment outcome positively in treated regions. ...
This paper investigates the effect of regional differences in corporate income tax reduction rates on employment within the scope of the reduced corporate income tax implementation put into effect in 2009. The implementation aims to encourage and increase investments, production, employment, and large-scale investments to increase international competitiveness, foreign direct investment and support Research and Development (R&D) activities, and eliminate regional development differences by reducing corporate income tax rates by region. This paper focuses on employment outcome in particular. The analysis relies on the "TurkStat Household Labor Force Survey Micro Dataset" in 2004-2021 for Turkey. Difference in Differences (DID) and Difference in Differences with Propensity Score Matching (DID-PSM) methods were used in the impact analysis of the tax policy discussed in the study. We employ DID and DID-PSM methods, designating respondents in regions with the highest corporate income tax reduction rates as treated subjects, and those with the lowest corporate income tax reduction rates as control subjects. The effects of regional differences in corporate income tax reduction rates on employment have been empirically demonstrated. The findings show that the regional differences in corporate income tax reduction rates on employment significantly and positively affect employment.
... Beberapa studi menunjukkan bahwa kebijakan berkenaan dengan tarif pajak penghasilan perusahaan memiliki pengaruh terhadap job creation dengan hasil yang bervariasi. Studi-studi tersebut telah dilakukan pada level negara bagian (Shuai & Chmura, 2013); level county (Ljungqvist & Smolyansky, 2014) dan level perusahaan (Leigh, 2018). ...
... (Leteur, Brevan, Pavard, Silhol, & Cherel, 2013) melakukan studi dampak kebijakan presumptive tax terhadap job creation dengan menggunakan data Brazilian Institute for Geography and Statistic (IBGE). Studi lain dilakukan oleh (Shuai & Chmura, 2013) mencoba menganalisis dampak kebijakan penurunan tarif pajak penghasilan perusahaan terhadap job creation pada level negara bagian. Ketiga penelitian tersebut belum melibatkan variabel tarif efektif pajak penghasilan perusahaan dalam mengestimasi dampak kebijakan presumptive tax sebagai pengganti pajak penghasilan perusahaan. ...
... Selain itu, juga ditambahkan beberapa variabel yang dapat mempengaruhi penciptaan lapangan kerja oleh perusahaan. Model yang digunakan dalam penelitian ini dilakukan dengan mengadopsi model empiris yang dipakai oleh (Shuai & Chmura, 2013) Tarif efektif pajak penghasilan perusahaan memperlihatkan berapa besar porsi penghasilan perusahaan yang digunakan untuk membayar pajak. Semakin besar tarif efektif pajak penghasilan perusahaan semakin kecil pula penghasilan setelah pajak yang dimiliki perusahaan. ...
Pemerintah mengeluarkan kebijakan presumptive tax yaitu PP 46 Tahun 2013 yang berlaku bagi sektor UMKM dengan peredaran bruto tidak lebih dari 4,8 Miliar Rupiah dalam satu tahun, dengan ketentuan tarif pajak penghasilan sebesar 1 persen dari omset. Di sisi lain, sektor UMKM menyerap sebagian besar tenaga kerja di Indonesia. Penelitian ini mengestimasi apakah kebijakan PP46 Tahun 2013 di Indonesia berpengaruh terhadap penciptaan lapangan kerja (job creation) pada perusahaan sektor kecil dan menengah dengan peredaran bruto tidak lebih dari 4,8 Miliar Rupiah. Pengukuran Job Creation dan tarif efektif pajak penghasilan perusahaan menggunakan laporan SPT Wajib Pajak dari Direktorat Jenderal Pajak (DJP) selama kurun waktu 7 tahun (2010 – 2016). Estimasi dampak dilakukan dengan metode Ordinary Least Square dengan memanfaatkan variabel dummy bagi perusahaan yang menggunakan tarif pajak PP 46 serta interaksi antara variabel dummy kebijakan dan variabel tarif efektif pajak penghasilan perusahaan. Dari hasil estimasi ditunjukkan bahwa kebijakan PP 46 memiliki dampak positif signifikan pada penciptaan lapangan kerja pada perusahaan berskala kecil dan menengah
... In terms of the effect of tax burden on employment, Shuai & Chmura (2013) found that corporate income tax incentives have a positive impact on employment size [5]. Zeng Guoan (2019) believes that the effect of tax cuts to promote employment growth tends to be balanced over time and across regions. ...
... In terms of the effect of tax burden on employment, Shuai & Chmura (2013) found that corporate income tax incentives have a positive impact on employment size [5]. Zeng Guoan (2019) believes that the effect of tax cuts to promote employment growth tends to be balanced over time and across regions. ...
... The authors conclude that a 5% drop in personal and corporate taxes contributes to a 3% increase in gross domestic product (GDP). Again, the regression results of Shuai and Chmura (2013) prove the observation that less corporate tax rates have a significant and positive impact on employment growth. But Feldmann (2011) addresses a two-stage least square assessment of corporate-tax effects on unemployment. ...
... The below table (1) is a complete description of the variables that we have used in our study. (Shuai and Chmura, 2013) Market Size MS The annual percentage growth rate of GDP per capita based on constant local currency. The growth rate of per capita GDP, a proxy for market size. ...
This study examines the relationship between corporate tax rate imposed on publicly traded companies and the corporate employment growth rate in Bangladesh. This paper will conceptualize the discernment that the corporate tax causes a shift to the corporate capital sector to the non-corporate sector that leads to a reduction in employment growth. This study employed Autoregressive Distributed Lag (ARDL) bounds testing methods for checking the cointegration among the variables using time series data from 1991-2018. The main purpose of the study is to investigate the long run and short-term relationship between publicly traded corporate tax rate and employment growth rates. The corporate tax imposed by the government to the publicly traded company has a negative and significant effect on employment growth rate of the corporation in both long run and short run. The estimated results of the model show that the corporate tax rate, population growth rate, and openness to market are the factors of employment growth in Bangladesh. The main outcomes of this study are that corporate tax rate, population growth rate, and market size are highly significant in the long run. Still, openness to market and inflation are insignificant in the long term. Error Correction Model (ECM) coefficient of corporate tax rate shows a 38 percent speed of adjustment in a year. The study recommends maintaining equitable and close linkage among corporate tax rates, population growth rate, and market size are essential to boost the employment growth rate in the publicly traded corporate sector in Bangladesh.
... The enactment of a tax rate cut increases the firm's ability to pay within the same period, reducing the prevailing tax evasion practices (Madzharova 2013). However, the job creation impact of such a policy is not observed immediately, given that the business needs time to adjust to the new tax rate (Shuai and Chmura 2013). ...
This paper endeavours to investigate whether a complex tax system influences firms’ propensity toward tax evasion across countries. To achieve the objectives of this study, we utilised the World Bank Enterprise Survey and the World Bank’s Doing Business databases covering more than 46,000 companies from 83 countries. Our study revealed that the increased time required to pay taxes and higher total tax payments were associated with a greater extent and incidence of tax evasion among firms. The consistency of these benchmark regression results was proven through endogeneity analysis and several robustness tests. Furthermore, our heterogeneity analyses showed that the effect of tax complexity on firm tax evasion was more prominent in low- and lower-middle-income countries and also in the primary industry. These findings offer promising evidence for policymakers, particularly in low- and lower-middle-income countries where the majority of companies operate in the primary industry. Addressing the complexity of the tax system could potentially mitigate the adverse impact on tax evasion levels in these countries. Furthermore, our spatial analysis provides valuable insights, emphasising the potential impact of tax complexity in neighbouring countries and underscoring the necessity for policymakers in the home countries to strategise on harmonising and streamlining their tax systems.
... A country's tax system is an important driver of other macroeconomic indicators (Pjesky and Rex 2006). Especially for countries with both developed and developing economies; there is a relationship between the tax structure and the level of economic growth (Shuai, Xiaobing and Christine 2013). Indeed, it has been argued that the level of economic growth is a very strong basis for a country's tax base and that tax policy objectives vary according to the stages of development (Mbanefoh, 2012). ...
This study examined the effect of value added tax on economic growth in Nigeria. This study used a longitudinal research design. The choice of design is based on the idea that the method offers the observation of trends and patterns of change. This was important in determining the potential impact of tax structure revenues on economic growth over time. The study used time series data from the period 1999-2021. Relevant data was collected from Central Bank of Nigeria Statistical Bulletin. The study employed ARDL Regression Analysis to test the hypothesis. The research shows that VAT has a significant negative impact on Nigeria's economic growth over the period under review. Based on the result obtained from the VAT variable, the authors not only recommend lowering tax rates, but also indicate the need to change to innovative development methods that promote faster and more stable economic growth. Therefore, an effective national regulatory and business support system should be a priority for the Nigerian government to ensure successful innovation development.
... As previously mentioned, studies have used cross-country or country data to find evidence of this effect and its correlation, using different methods. At the same time, the research results are only relevant in the context of economic development and the scope of one or more countries' data selected for the study (Tagkalakis, 2013;Shuai & Chmura, 2013;Kawano & Slemrod, 2016). ...
Corporate income tax is an important tax for the state to regulate budget revenue and is an important tool for encouraging and promoting production and business development to create jobs. This study investigated the relationship and impact between corporate income tax and unemployment in Vietnam, China, and South Africa to investigate whether higher corporate income tax contributes to higher unemployment. Data on corporate taxation and unemployment rates from 2000 to 2020 are collected, and the VAR model, cointegration, and impulse response tests were applied to estimate the impact of taxation on the unemployment rates of developed, developing, and underdeveloped countries. The corporate tax and unemployment rates have a close relationship: South Africa, China, and Vietnam correspond to 82%, 54.3%, and 47%, and the majority of the model’s variables for the three countries are non-stationary at lag I(0), with the exception of the variable for China’s unemployment rate, which demonstrates that the probabilities of the model’s variables for Vietnam and South Africa are greater than the alpha of 0.05 and are, respectively, 0.6193, 0.7299, 0.3421, and 0.6347. Thus, variables have a lag after year, in this case, assuming that other factors remain unchanged if the corporate tax rate decreases by 1%, South Africa’s unemployment rate decreases by 10%. Similarly, Vietnam’s unemployment rate decreased by 1.1%, but China’s unemployment increased by 2.9%. The suggestion is that the government adjusts tax laws to better match micromanagement and regulate and balance the relationship between taxes and unemployment.
... A country's tax system has essential control over other displays of macroeconomic [3] . In both industrialized and emerging economies, there is an oath between tax composition and the growth of the economy [4] . Certainly, it has been contended that a country's tax base heavily influences its level of economic growth, and tax rule fluctuates depending on the phase of development [5] . ...
This study looked at the impact of the Nigerian stamp duty tax on the growth of the economy. Time series data were employed spanning the years 1999-2020. For various years, related data were extracted from the Central Bank of Nigeria Statistical Bulletin, the Bureau of National Statistics, and Federal Inland Revenue Service reports. E-view 9.0 was used to test the hypothesis using the ordinary least square. The study outcome revealed that stamp duty has an insignificant and positive impact on Nigeria’s economic growth. It was recommended that the government improve public entities and provide strong government investment as a source of domestic revenue generated from various business activities.
... CIT policies may also have indirect impacts on several other macroeconomic variables such as employment. For instance, using US data, Shuai and Chmura (2013) show that lower CIT rates can increase employment growth in the short term. Likewise, Ljungqvist and Smolyansky (2014) find that a one-percentage-point increase (decrease) in the CIT rate leads to a fall (increase) in employment levels by 0.2 percentage points in the United States. ...
Many countries have initiated structural reforms in corporate income tax (CIT) to attract investment and promote growth. There has been a continuous decline in CIT rates worldwide. It is expected that cuts in CIT rates may increase after-tax profits and encourage investment. A change in the CIT rate may also be shifted backward (by changing salaries and wages) and/or forward (by changing product prices). These are theoretical possibilities and may not have support from empirical evidence. In this paper we review empirical studies to assess the impact of CIT rate changes on the economy.
... Goss and Phillips (1994) consider that personal income taxes reduce the employment increase, but income taxes do not have this effect. Also, Shuai and Chmura (2013) find that higher corporate taxes reduce employment growth. Chigbu et al. (2012) conducted an empirical study on Nigeria for the sample period 1970-2009, and the results revealed the existence of cointegration and causality between taxation and economic growth. ...
The main objective of this empirical study is to investigate the impact of tax revenue on GDP dynamics at EU-28 level based on structural equation modeling (SEM). We applied structural equation modeling (SEM) which represents a multivariate statistical analysis technique used especially for analyzing structural relationships between measured variables and latent structures. Selected taxes are the following: environmental taxes, indirect taxes, social contributions, taxes on capital, taxes on labour, taxes on property, and direct taxes. The sample period includes a long time horizon during 2005-2017 for each member states of EU-28. Our empirical findings revealed the level of taxation exhibits an increased influence on GDP dynamics in case of EU-28 member states.
JEL Codes - C3; E62; O47; O52
... Findings show that an increase in the top marginal corporate tax rate by one-percentage-point reduces employment by 0.3-0.5 percent and income by 0.3-0.5 percentage points. Following similar methodology, Shuai and Chmura (2013) compare states that reduce corporate income tax rates with those making no changes. They also find the positive impact of corporate tax cuts on faster job creation. ...
This paper investigates the assumption of homogeneous effects of federal tax changes across the U.S. states and identifies where and why that assumption may not be valid. More specifically, what determines the transmission mechanism of tax shocks at the state level? How vital are states' fiscal structures, financial conditions, labor market rigidities, and industry mix? Do these economic and structural characteristics drive the transmission mechanism of the tax changes at the state level at different horizons? This study employs a panel factor-augmented vector autoregression (FAVAR) technique to answer these issues. The findings show that state economies respond homogeneously in terms of employment and price levels; however, they react heterogeneously in real GDP and personal income growth. In most states, these reactions are statistically significant, and the heterogeneity in the effects of tax cuts is significantly related to the state's fiscal structure, manufacturing and financial composition, and the labor market's rigidity. A cross-state regression analysis shows that states with higher tax elasticity, higher personal income tax, strict labor market regulation, and economic policy uncertainties are relatively less responsive to federal tax changes. In contrast, the magnitude of the response in real GDP, personal income, and employment to tax cuts is relatively higher in states with a larger share of finance, manufacturing, lower tax burdens, and flexible credit markets.
... After some years, however, it was observed that states that cut corporate income taxes have rebounded or even grown faster in terms of job creation. The fixed effects panel regression model used by Shuai and Chmura (2013) found that state corporate tax rates have a significant negative effect on job growth rate. In addition, tax reduction has the benefit of short-term job growth as companies react and respond to the new policy. ...
There is a widespread assumption that lower corporate taxation will lead to higher rates of job creation, but this belief may be false, as challenged by Anderson and Pizzigati (2017). This article studies the relationship between job creation and three tax aggressiveness proxies in Brazilian non-financial firms listed in B3, in the period between 2011 and 2016. The estimates were conducted using the methods of ordinary least squares (OLS), and quantile regression. The results obtained from the estimates using OLS did not present significant evidence of an association between the rate of job creation and effective tax rates. In the quantile regressions, it was possible to find a significant and positive relationship between job creation and effective tax rates, exclusively in quantile 25 of the effective tax rate on value added. Quantiles 50 and 75 presented negative relationships between job creation and effective tax rates in different tax aggressiveness metrics. The results suggest that firm's tax aggressiveness profile influences the relationship. While in the less tax aggressive companies the reduction of the tax burden would potentially stimulate job creation, in those more tax aggressive the tax break may lead to the undesirable effect of a fall in job creation.
This study examines the impact of reductions in Indiana's corporate income tax rate beginning in July 2012. It employs the synthetic control method to construct a counterfactual, or “synthetic Indiana,” using quarterly manufacturing employment data from 23 states that did not change their tax rates during the 2003–2018 study period. The analysis suggests that a weighted combination of Iowa (11.9%), Tennessee (69.5%), Utah (8%), and Wisconsin (10.5%) best predicts the trajectory of manufacturing employment in Indiana from 2003 to 2011 before the rate cuts. Placebo tests and exact p-value estimates are used to test the significance of the employment effects of the corporate income tax rate cuts, and a placebo-date falsification test is used as a robustness test. The test results suggest that the rate cuts did not impact manufacturing employment. Placebo-date falsification tests suggest that changes to the corporate apportionment formula from 2007 to 2011 instead positively affected manufacturing employment.
This paper reviews the literature providing quantitative and empirical results on capital taxation. In doing this, we differentiate between individual and corporate taxes, respectively. From existing literature, it emerges that capital income taxes for individuals increase with the degree of heterogeneity within the population, market competition, and the economy's maturity, being negative (i.e., subsidy) in the presence of monopolistic competition or developing countries, no higher than 15% in Mirrleesian economies and as high as 45% when coupled with incomplete insurance markets and labor income taxes in competitive‐closed economies. Excessively high wealth tax rates for redistributive purposes, however, are prevented by the larger tax elasticity of rich (−1.15) with respect to poor (−0.09) individuals. Negative tax elasticities concerning employment (from −0.5 to −0.2), innovation (from −2.8 to −1.3), and investments (−4.7) suggest low corporate taxes, whose magnitude should be negatively related to the degree of the economy's openness, given also the possibility for firms to relocate abroad. Finally, although still inconclusive, the main conclusions concerning dividend taxes suggest that tax rates increase with the firm's size and, thus, be set at low levels for start‐ups.
This study examined the effect of tax structure on economic growth in Nigeria. The specific objectives were; to study the effect of petroleum profit tax on the economic growth of Nigeria and the effect of stamp duty on the economic growth of Nigeria.
The study examines the effect of tax composition on economic growth in Nigeria spanning from 2000 to 2020. The independent variable is tax composition measured by petroleum profit tax, and company income tax. Meanwhile, the dependent variable is economic growth measured by gross domestic product. Data for the study were sourced from Autoregressive Distributed Lag Model since the unit root test evidenced mixed integration (i.e. the study variables are integrated both at levels and first difference). The statistical package used to run the regression is STATA 16. The ARDL bond test reported that, tax composition has long run effect on economic growth in Nigeria. However, on the short run, Petroleum profit tax (LOGPPT) (Coef. = 10.659, t = 2.65 and P-value = 0.021)has a positive significant effect on economic growth in Nigeria. However, company income tax (LOGCIT) (Coef. =-0.603, t =-0.49 and P-value = 0.630) has a negative insignificant effect on economic growth in Nigeria. Hence, the study concludes that, while higher petroleum profit tax revenue promotes economic growth, higher company income tax revenue surprisingly stalled economic growth in Nigeria during the period under investigation. Asuch, the Nigerian government should embark on strategic pursuit of broadening the economy by engaging in a complete reorganization of the tax administrative machineries in order to reduce the loopholes of tax evasion and avoidance.
En Colombia, se han promulgado recientemente dos leyes de reforma tributaria con el objetivo primordial de estimular la generación de empleo formal: la Ley 1607 de 2012, que redujo algunos de los recargos extrasalariales que grababan la nómina de personal, y la Ley 2010 de 2019, que disminuyó de forma sustancial el impuesto a la renta de las empresas. En este artículo se reportan los resultados ocupacionales estimados por algunas evaluaciones de impacto a las que fue sujeta la Ley 1607 de 2012, mientras que en el caso de la Ley 2010 de 2019 se procede a una evaluación ex-antes y se examina la evolución reciente de algunas estadísticas descriptivas. La experiencia colombiana en materia de reformas tributarias muestra cómo la baja en los impuestos a las empresas no ha resultado ser definitiva en la lucha contra la informalidad, como tampoco en la generación de empleo formal.
There is a widespread assumption that lower corporate taxation will lead to higher rates of job creation, but this belief may be false, as challenged by Anderson and Pizzigati (2017). This article studies the relationship between job creation and 3 tax aggressiveness proxies in Brazilian non- financial firms listed in B3 in the period between 2011 and 2016. The estimates were created using the methods of ordinary least squares (OLS) and quantile regression. The results obtained from the estimates using OLS did not present significant evidence of an association between the rate of job creation and effective tax rates. In the quantile regressions, it was possible to find a significant and positive relationship between job creation and effective tax rates, exclusively in quantile 25 of the effective tax rate on value added. Quantiles 50 and 75 presented negative relationships between job creation and effective tax rates in different tax aggressiveness metrics. The results suggest that the firm’s tax aggressiveness profile influences the relationship. While in the less tax-aggressive companies a reduction of the tax burden would potentially stimulate job creation, in those companies that are more tax-aggressive, the tax break may lead to the undesirable effect of a fall in job creation.
This paper examines the comprehensive IRS data set of state-state migration flows for evidence that differences in state income tax rates are associated with migration patterns. Using annual data on moves between every pair of states, pooled time-series cross-section regressions indicate that in the 1992–2010 period states with higher top marginal income tax rates experienced relatively greater outmigration of taxpayers and gross income. To illustrate the magnitude of the tax effect, we estimate that by 2010 cumulative losses since the enactment of New Jersey’s 2004 “millionaires’ tax” were as much as 42,000 taxpayers and 6.9 billion in annual adjusted gross income. These results suggest that sustained, relatively high income tax rates could gradually erode a state’s population and revenue base.
States' ability to collect taxes on business, and particularly on interstate business activity, appears to be diminishing. This should not be a surprising outcome since economists have for many years recognized the difficulties for subnational governments to collect taxes on mobile activities. Much recnt attention has been paid to the revenue losses that have resulted from the inability to collect taxes on Internet sales, and in particular on business-to-business transactions. Reduction in state taxation of specific industries such as telecommunications (through lower rates, reduced property tax assessments, and so forth) has taken place as well. Focus has shifted recently to the diminishing relative importance of corporate income taxes as as state revenue source. Combined, these factors represent a significant lowering of the tax burden that is initially incident on business. This paper takes just one of these, the role of corporate income taxation, and seeks to investigate the extent to which the revenues have declined and some ways to reverse the pattern.
This applied study examines the effects of local taxes and government spending on the employment growth of 17,172 Maine establishments that were in operation in 1996 and 1999. Empirical results indicate that taxes have a negative effect on an establishment's three-year employment growth rate, although the tax effects are quite small in magnitude. These results are robust to the omission of establishments located in municipalities that cause group effects in the regression analysis. The negative tax effects are not statistically significant, however, in regressions that correct for sample selection bias related to establishment closures. In general, the empirical findings do not reveal a significant relationship between establishment growth and several types of local government spending.
Using a Barro-type empirical growth framework we explore the relationship between tax and expenditure limitations (TELs) and the economic growth of U.S. states. The model uses a panel of annual data for the 50 states from 1990 to 2010, with a variable parameter specification coupled with a dynamic Generalized Method of Moments (GMM) panel estimator. In general, more restrictive tax and expenditure limitations can influence the growth process; however, this relationship varies over levels of income and type of TEL
I estimate the relationship between taxes and income growth using data from 1970–1999 and the forty–eight continental U.S. states. I find that taxes used to fund general expenditures are associated with significant, negative effects on income growth. This finding is generally robust across alternative variable specifications, alternative estimation procedures, alternative ways of dividing the data into “five–year” periods, and across different time periods and Bureau of Economic Analysis (BEA) regions, though state–specific estimates vary widely. I also provide an explanation for why previous research has had difficulty identifying this “robust” relationship.
California's longstanding requirement that most women receive time-and-a-half pay for workhours beyond eight in one day was extended to men in 1980. Analyzing Current Population Survey data from 1973, 1985, and 1991, we find that this overtime penalty substantially reduced the amount of daily overtime worked by California men relative to men in other states. Comparisons that use women to control for California-specific shocks show even stronger effects. The estimates imply a price elasticity of demand for overtime hours of at least -0.5.
This paper provides an economic explanation for the increasing reliance of the state on revenue from user charges on excludable public goods. We develop a model with many identical countries. The government of each country levies a capital tax on the domestic production sector and supplies an excludable public good to heterogeneous households. Under immobile capital, the price on the public good is zero. Under mobile capital, in contrast, the countries engage in tax competition and each country chooses a strictly positive price on the public good. With quasi-linear preferences, the reliance on user charges is shown to increase as tax competition becomes more intensive.
This review summarizes recent research on the effects of state and local taxes on state and local business activity. Contrary to previous research, this recent research indicates that state and local taxes have statistically significant negative effects on the economic growth of a state or metropolitan area. However, the range of plausible tax effects is large, implying that the annual costs of creating one job could vary from 11, 000. For small suburban jurisdictions, taxes have more powerful effects on business growth than is true for metropolitan areas or states. These effects are so powerful that a cut in business property tax rates could plausibly raise revenue for a suburb.
This study is a replication of five studies that have had an impact on the way we think about state and local taxes. This study has three phases. In the first phase, the original studies are independently replicated. In the second phase, the original models are estimated a recent, uniform time-period (1977-1997). In the third phase, the original models are estimated with a common time-period and a common dependent variable (Per Capita Personal Income). When these models are estimated with a common, later timeperiod and a common dependent variable, the seeming consistency of these five studies no longer holds.
Studies examining the effect of state and local government fiscal variables on states' employment and personal income growth find substantial effects during the 1970s. However, when similar models are estimated for the 1980s, the results reveal that the effect of government fiscal variables on subnational growth has waned. This paper pools cross-sectional and time-series data during the 1967-88 period to test for the presence of a structural change in the relationship between state and local fiscal behavior and subnational economic growth. Using a switching regression model, we uncover evidence of structural changes between 1976 and 1983. In particular, our results suggest that fiscal variables influenced manufacturing employment in states more significantly during the 1970s than during the 1980s. As well, the results indicate that government fiscal variables had little impact on employment changes in nonmanufacturing industries in either the 1970s or the 1980s.
ABSTRACT The results of this study confirm the expected positive relationship between economic development agency spending and employment growth among the states. Furthermore, it is concluded that past studies, by failing to control for state economic development agency spending in estimated regression equations, have underestimated the negative impact of personal taxes on employment growth.
This empirical study describes property tax exportation to business properties in Massachusetts and investigates its effects on the location of private establishments. The author uses panel econometric techniques on 351 incorporated municipalities from 2001 to 2006. The results suggest that the level and relative share of property tax levied on businesses have a negative impact on their establishments. The rise in the share of tax levy on businesses by 50 percentage points relative to their share of assessed value could result in 5 fewer business establishments and 60 fewer private goods-producing industry jobs. Preliminary analysis also indicates that such a tax-exporting policy may be desirable from a revenue perspective, but the substantial loss in business activity should be considered.
This paper investigates the economic impact of the apportionment formulae used to divide corporate income taxes among the states. Most apportionment formulae, by including payroll, turn the state corporate income tax at least partially into a payroll tax. Using panel data from 1978–1994, the results show that this distortion has an important effect on state-level employment. For the average state, reducing the payroll weight from one-third to one-quarter increases manufacturing employment around 1.1%, concentrated in durable goods manufacturing and with larger effects in the long-run. The results also suggest that apportionment changes have important negative externalities on other states. On average, the aggregate effects of apportionment formula changes are close to zero.
Amid falling revenues and impending budget shortfalls, state policymakers must find ways to increase revenue, cut spending, or both. At the same time, they must develop policies that attract or keep businesses and jobs. Some policymakers may consider raising corporate tax rates because it avoids directly taxing workers who are already suffering the effects of this recession. But as states reevaluate their current tax policy, it is important to consider the effects of each tax component. One important question is: Who will bear the burden of the taxes? ; State corporate income taxes are complex, and thus the answer to this question is far from obvious. Many believe that the state corporate tax structure is highly progressive because the corporate capital taxed is owned disproportionately by wealthy individuals. In today's economy, however, the burden of the corporate tax may have shifted to consumers or labor, resulting in a less progressive tax structure. ; Research has shown that in some cases labor bears a substantial weight of the corporate tax. While this burden has fluctuated over time, the relationship between corporate taxes and wages has been consistently negative. In other words, higher corporate taxes are typically associated with lower wages. ; Felix examines the impact of state corporate taxes on wages. She shows that corporate taxes reduce wages and that the magnitude of the negative relationship between the taxes and wages has increased over the past 30 years. She also finds that state corporate taxes have a larger negative effect on more highly educated workers.
This paper investigates the impact of tax changes on economic activity. We use the narrative record, such as presidential speeches and Congressional reports, to identify the size, timing, and principal motivation for all major postwar tax policy actions. This analysis allows us to separate legislated changes into those taken for reasons related to prospective economic conditions and those taken for more exogenous reasons. The behavior of output following these more exogenous changes indicates that tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes. (JEL E32, E62, H20, N12)
The Social Security earnings test taxes away benefits at a 33%-50% rate once earnings pass a threshold amount. I investigate the response to three past changes in the earnings test rules, each applying to some age groups and not others. I find that beneficiaries bunch in substantial numbers just below the earnings threshold, and the bunching shifts when the earnings test rules change. These shifts in the budget constraint are incorporated into an econometric model to identify income and substitution effects. The estimation yields significant elasticities that suggest considerable deadweight loss suffered by working beneficiaries. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
This paper investigates the economic impact of the apportionment formulae used to divide corporate income taxes among the states. Most apportionment formulae, by including payroll, turn the state corporate income tax at least partially into a payroll tax. Using panel data from 1978 - 1994, the results show that this distortion has an important effect on state-level employment. For the average state, reducing the payroll weight from one-third to one-quarter increases manufacturing employment around 3% and the result is highly robust. The results also indicate that apportionment changes have important negative externalities on other states in that the effects of the apportionment formula on aggregate employment is zero. Every job gained within a state from an apportionment change is taken from another state. This externality suggests that the U.S. would be better off if the apportionment formula were set at a federal level. The paper also shows that because the payroll component of the tax is administered on top of the existing payroll tax, the deadweight loss from this component of state corporate income taxation may be significant, despite the low tax rates.
Those who shape state and local fiscal policy have had a sustained interest in the role that taxation plays in the economic development of states, regions, cities, and special districts or zones. At least 75 studies of employment growth, investment growth, or firm location include an analysis of taxes. Interest in the topic is fueled further when firms complain about the business climate in general or about taxation in particular. State or local policymakers then have the unenviable task of deciphering firms ’ complaints and deciding whether additional tax incentives and lower taxes represent economic rents or constitute a timely and necessary response to keep firms in place. Tax policy is not considered by firms or policymakers in isolation from other aspects of site selection, including benefits from public goods that might accrue to firms or to its workers. The literature also has pointed to a number of other variables as important determinants of firm location or employment growth decisions. Nonetheless, I leave the
Workers' compensation reforms have been on the table in virtually every state over the last several years, and many states have launched comprehensive reforms. At least nine states undertook major reforms of their workers' compensation systems in 2004 alone, and the reforms were driven largely by claims that higher workers' compensation costs are driving away businesses and the employment that comes with them. This paper examines the relationship between workers' compensation costs, as proxied by benefits/earnings, and employment across U.S. states and the District of Columbia from 1976 to 2000. Workers' compensation costs are found to have a statistically significant negative impact on employment and wages, but the elasticities are very small, suggesting that workers' compensation is not a likely cause of jobs woes in most states. Unemployment insurance appears to have an effect of similar magnitude. Medical cost inflation is found to be a significant factor in explaining movements in workers' compensation costs over time. Copyright Blackwell Publishers, 2006
Governor Predicts ‘Cruel’ Cuts in 2010. The Orange County Register
- J Brian
Wisconsin Democrats Defend Legislature’s Action on Job Creation Amid Criticism
- S Bauer
Population Estimates
- U S Bureau