The Weighting Game: Formula Apportionment as an Instrument of Public Policy
AbstractWe propose an explanation for why states choose different apportionment formulas for corporate income tax purposes. Based on a two-state equilibrium model of location choice by firms, we show that aggregate social welfare is maximized when both states use the same formula, regardless of which formula is chosen. However, at least one of the states can increase its welfare by deviating from this coordinated solution; thus, the Nash equilibrium features the states choosing different formulas. Importing states have incentives to increase the sales factor, whereas exporting states will tend to increase the input factors. An empirical test of which states have deviated from the traditionally equally-weighted three factor formula supports the predictions of the model.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by National Tax Association in its journal National Tax Journal.
Volume (Year): 53 (2000)
Issue (Month): n. 2 (June Citation: 53 National Tax Journal 183-200 (June 2000))
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Klassen, Kenneth J. & Shackelford, Douglas A., 1998. "State and provincial corporate tax planning: income shifting and sales apportionment factor management," Journal of Accounting and Economics, Elsevier, vol. 25(3), pages 385-406, June.
- Austan Goolsbee & Edward L Maydew, 1998.
"Coveting Thy Neighbor's Manuafacturing: The Dilemma of State Income Apportionment,"
NBER Working Papers
6614, National Bureau of Economic Research, Inc.
- Goolsbee, Austan & Maydew, Edward L., 2000. "Coveting thy neighbor's manufacturing: the dilemma of state income apportionment," Journal of Public Economics, Elsevier, vol. 75(1), pages 125-143, January.
- Gordon, Roger H & Wilson, John Douglas, 1986. "An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment," Econometrica, Econometric Society, vol. 54(6), pages 1357-73, November.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Charmaine Wright).
If references are entirely missing, you can add them using this form.