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Can Lower Tax Rates be Bought? Business Rent-Seeking and Tax Competition among U.S. States

Author

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  • Robert S. Chirinko
  • Daniel J. Wilson

Abstract

The standard model of strategic tax competition assumes that government policymakers are perfectly benevolent, acting solely to maximize the utility of the representative resident in their jurisdiction. We depart from this assumption by allowing for the possibility that policymakers also may be influenced by the rent-seeking (lobbying) behavior of businesses. This extension to the standard strategic tax competition model implies that business contributions may affect not only the levels of equilibrium tax rates but also the slope of the tax reaction function between jurisdictions, thus enhancing or retarding the mobility of capital across jurisdictions. The model is estimated with panel data for 48 U.S. states and unique data on business campaign contributions. Among other results, we document a significant direct effect of business contributions on tax policy; the economic value of a $1 business campaign contribution in terms of lower state corporate taxes is approximately $6.65.

Suggested Citation

  • Robert S. Chirinko & Daniel J. Wilson, 2010. "Can Lower Tax Rates be Bought? Business Rent-Seeking and Tax Competition among U.S. States," CESifo Working Paper Series 3121, CESifo.
    • Handle: RePEc:ces:ceswps:_3121
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    Cited by:

    1. Yu-Fu Chen & Michael Funke, 2010. "Global Warming And Extreme Events: Rethinking The Timing And Intensity Of Environmental Policy," Dundee Discussion Papers in Economics 236, Economic Studies, University of Dundee.
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    3. Ivo Bischoff & Stefan Krabel, 2017. "Local taxes and political influence: evidence from locally dominant firms in German municipalities," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(2), pages 313-337, April.
    4. Per G. Fredriksson & Khawaja A. Mamun, 2014. "Tobacco Politics and Electoral Accountability in the United States," Public Finance Review, , vol. 42(1), pages 4-34, January.
    5. Michael P. Devereux & Simon Loretz, 2013. "What Do We Know About Corporate Tax Competition?," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(3), pages 745-774, September.
    6. Bruno De Borger & Amihai Glazer, 2015. "Inducing political action by workers," Southern Economic Journal, John Wiley & Sons, vol. 81(4), pages 1117-1144, April.
    7. Sanz-Córdoba, Patricia, 2020. "The role of infrastructure investment and factor productivity in international tax competition," Economic Modelling, Elsevier, vol. 85(C), pages 30-38.
    8. Denvil Duncan & Ed Gerrish, 2014. "Personal income tax mimicry: evidence from international panel data," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(1), pages 119-152, February.
    9. Wagner, Gary A. & Elder, Erick M., 2021. "Campaigning for retirement: State teacher union campaign contributions and pension generosity," European Journal of Political Economy, Elsevier, vol. 68(C).
    10. Florence Lachet-Touya, 2016. "EU tax competition and tax avoidance: A multiprincipal perspective," Working Papers hal-02939340, HAL.
    11. Florence TOUYA, 2016. "EU tax competition and tax avoidance: A multiprincipal perspective," Working Papers 2015-2016_11, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Aug 2016.
    12. Bruno De Borger & Amihai Glazer, 2010. "Subsidizing Consumption to Signal Quality of Workers," Working Papers 101101, University of California-Irvine, Department of Economics.
    13. Chirinko, Robert S. & Wilsom, Daniel J., 2010. "Can Lower Tax Rates Be Bought? Business Rent-Seeking and Tax Competition Among U.S. States," National Tax Journal, National Tax Association;National Tax Journal, vol. 63(4), pages 967-993, December.
    14. Florence Lachet-Touya, 2016. "Horizontal and Vertical Tax Interactions in a Common Agency Game," Working papers of CATT hal-02939399, HAL.
    15. Esteller-Moré, Alejandro & Galmarini, Umberto & Rizzo, Leonzio, 2012. "Vertical tax competition and consumption externalities in a federation with lobbying," Journal of Public Economics, Elsevier, vol. 96(3), pages 295-305.
    16. Michael Keen & Kai A. Konrad, 2012. "International Tax Competition and Coordination," Working Papers international_tax_competi, Max Planck Institute for Tax Law and Public Finance.
    17. Florence Lachet-Touya, 2016. "Horizontal and Vertical Tax Interactions in a Common Agency Game," Working Papers hal-02939399, HAL.
    18. Florence TOUYA, 2016. "Horizontal and Vertical Tax Interactions in a Common Agency Game," Working Papers 2015-2016_12, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Aug 2016.
    19. Cailin Slattery & Owen Zidar, 2020. "Evaluating State and Local Business Tax Incentives," Working Papers 261, Princeton University, Department of Economics, Center for Economic Policy Studies..
    20. Slattery, Cailin & Tazhitdinova, Alisa & Robinson, Sarah, 2023. "Corporate political spending and state tax policy: Evidence from Citizens United," Journal of Public Economics, Elsevier, vol. 221(C).
    21. Florence Lachet-Touya, 2016. "EU tax competition and tax avoidance: A multiprincipal perspective," Working papers of CATT hal-02939340, HAL.
    22. Romero, Jorge A., 2022. "Lobbying and political expenses: Complements or substitutes?," Journal of Business Research, Elsevier, vol. 149(C), pages 558-575.
    23. Raymond G. Batina & Gregmar I. Galinato, 2017. "The Spillover Effects of Good Governance in a Tax Competition Framework with a Negative Environmental Externality," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(4), pages 701-724, August.
    24. Galinato, Gregmar & Hong, Yeon A., 2018. "Tobacco Education Program Spending and Tobacco Use among Adolescents," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 43(3), September.

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    More about this item

    Keywords

    business campaign contributions; state business tax policy; rent-seeking; capital mobility;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

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