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State user costs of capital

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  • Charles Ian Mead
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    Abstract

    This paper extends the theoretical model of Hall and Jorgenson (1967) in order to examine major changes in state and local tax laws and their effects on the variation in tax burdens across states. A user cost of capital series that accounts for the major provisions of federal and state tax laws is calculated for representative firms in all forty-eight contiguous U.S. states at five-year intervals during the period 1963 to 1997. Previous studies of this topic have been limited to estimates of effective marginal tax rates for only a handful of locations and time periods. The results suggest that state and local tax policies have little effect on the variation in the user cost of capital across states. Further, state and local taxes have a large effect on the variation of effective marginal tax rates across states, which is consistent with what others have found. The implication is that state and local tax policies have little effect on state-specific investment because this variable is likely to be more directly related to the investment decisions of firms.

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    File URL: http://www.bostonfed.org/economic/wp/wp2001/wp013.htm
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    Bibliographic Info

    Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number 01-3.

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    Date of creation: 2001
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    Handle: RePEc:fip:fedbwp:01-3

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    Keywords: State finance ; Taxation;

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    1. Robert Tannenwald, 1996. "State business tax climate: how should it be measured and how important is it?," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 23-38.
    2. Peter S. Fisher & Alan H. Peters, 1998. "Industrial Incentives: Competition among American Cities and States," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number ii.
    3. Carlton, Dennis W, 1983. "The Location and Employment Choices of New Firms: An Econometric Model with Discrete and Continuous Endogenous Variables," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 440-49, August.
    4. Papke, Leslie E., 1991. "Interstate business tax differentials and new firm location : Evidence from panel data," Journal of Public Economics, Elsevier, vol. 45(1), pages 47-68, June.
    5. Bartik, Timothy J, 1985. "Business Location Decisions in the United States: Estimates of the Effects of Unionization, Taxes, and Other Characteristics of States," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(1), pages 14-22, January.
    6. Holden, Darryl R & Nairn, Alasdair G M & Swales, J K, 1989. "Shift-Share Analysis of Regional Growth and Policy: A Critique," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(1), pages 15-34, February.
    7. Don Fullerton, 1984. "Which Effective Tax Rate?," NBER Working Papers 1123, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Bental, Benjamin & Demougin, Dominique, 2010. "Declining labor shares and bargaining power: An institutional explanation," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 443-456, March.
    2. Christian Nsiah & Chen Wu & Walter Mayer, 2012. "An analysis of US State’s export performance in the Asian Market," The Annals of Regional Science, Springer, vol. 49(2), pages 533-550, October.

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