Journal of Political Economy · 2018 · 331 citations · 49 references
LawBusiness EconomicsEconomicsCorporate TaxationState TaxationTaxationCorporate Income TaxMultistate TaxationApportionment Of Business ActivityCorporate Income Tax PolicyMulti-state TaxationMultistate Corporate Income TaxPass-through Entity InterestsState Income TaxationTax Incidence Across StatesTaxation Of Corporations
The study estimates how state taxes affect business activity using census microdata on multistate firms and their organizational forms. The authors analyze the impact of state taxes on business activity by applying census microdata on multistate firms and their organizational forms. C‑corporations experience short‑run employment and establishment elasticities of −0.4 to −0.5 that are unaffected by personal tax changes, while pass‑through entities and capital show −0.2 to −0.4 elasticities to personal taxes and no response to corporate taxes; roughly half of the effect is driven by reallocating resources to other states, with the strongest responses in tradable and footloose industries.
Using census microdata on multistate firms and their organizational forms, we estimate the impact of state taxes on business activity. For C corporations, employment and the number of establishments have short-run corporate tax elasticities of −0.4 to −0.5 and do not vary with changes in personal tax rates. Pass-through entity activities show tax elasticities of −0.2 to −0.4 with respect to personal tax rates and are invariant with respect to corporate tax rates. Capital shows similar patterns. Reallocation of productive resources to other states drives around half the effect. The responses are strongest for firms in tradable and footloose industries.
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