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Do Limited Liability Companies Explain Declining State Corporate Tax Revenues?

Author

Listed:
  • William F. Fox
  • LeAnn Luna

    (University of Tennessee)

Abstract

The effective state corporate tax rate fell significantly during the past fifteen years despite the very robust growth in corporate book profits. This article examines the causes of the decline with a focus on the effects of the relatively new option of forming limited liability companies (LLCs), state tax policy, and changes in the federal base. The effects are estimated using a simultaneous equation model and a twelve-year panel for U.S. states. The results confirm that the advent and growth of LLCs have been important causes of the decline in corporate tax revenues. In addition, changes in the federal corporate tax base, the propensity of states to grant tax incentives, and the failure of states to require combined reporting have been significant factors in falling corporate tax revenues.

Suggested Citation

  • William F. Fox & LeAnn Luna, 2005. "Do Limited Liability Companies Explain Declining State Corporate Tax Revenues?," Public Finance Review, , vol. 33(6), pages 690-720, November.
    • Handle: RePEc:sae:pubfin:v:33:y:2005:i:6:p:690-720
    DOI: 10.1177/1091142105279333
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    3. Freire-Serén, María Jesús & Panadés i Martí, Judith, 2013. "Tax avoidance, human capital accumulation and economic growth," Economic Modelling, Elsevier, vol. 30(C), pages 22-29.
    4. David Merriman, 2016. "What determines the level of local business property taxes?," Working Papers 16-2, Federal Reserve Bank of Boston.
    5. Anna Bánociová & Slavomíra Ťahlová, 2020. "Tax Loss Amortization of Companies in Slovakia," JRFM, MDPI, vol. 13(10), pages 1-14, October.
    6. Petr Janský, 2023. "Corporate Effective Tax Rates for Research and Policy," Public Finance Review, , vol. 51(2), pages 171-205, March.
    7. Stephen J. Lusch & James Stekelberg, 2020. "State Tax Haven Legislation and Corporate Income Tax Revenues," Public Finance Review, , vol. 48(3), pages 354-383, May.
    8. Chiarini, Bruno & Ferrara, Maria & Marzano, Elisabetta, 2022. "Tax evasion and financial accelerator: A corporate sector analysis for the US business cycle," Economic Modelling, Elsevier, vol. 108(C).

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