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Lessons for International Tax Reform from the US State Experience under Formulary Apportionment

Author

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  • Clausing, Kimberly

Abstract

This work undertakes a comprehensive analysis of the US state experience under formulary apportionment of corporate income. While formulary apportionment eliminates the possibility of shifting income across states through accounting strategies that manipulate where income is booked, it may heighten the tax responsiveness of formula factors. The present analysis uses the substantial variation in corporate tax policy decisions of US states over the period 1986 to 2012 to understand the consequences of formulary apportionment better. It examines the effects of policy choices regarding tax rates, formula weights, and other parameters on economic activity, estimating the tax sensitivity of employment, investment, and sales. With the inclusion of adequate control variables, results indicate that economic activity has not been particularly sensitive to US state corporate tax policy choices, especially in recent years. Still, tax policy choices have important effects on corporate tax revenues. These results suggest important lessons regarding possible international adoption of formulary apportionment.

Suggested Citation

  • Clausing, Kimberly, 2014. "Lessons for International Tax Reform from the US State Experience under Formulary Apportionment," Working Papers 12779, Institute of Development Studies, International Centre for Tax and Development.
    • Handle: RePEc:idq:ictduk:12779
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    File URL: https://opendocs.ids.ac.uk/opendocs/handle/20.500.12413/12779
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    Citations

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    Cited by:

    1. Fabien Candau & Jacques Le Cacheux, 2017. "Corporate Income Tax as a Genuine own Resource," Working papers of CATT hal-01847937, HAL.
    2. Fabien Candau & Jacques Le Cacheux, 2017. "Corporate Income Tax as a Genuine Own Resource," Post-Print hal-02633862, HAL.
    3. Gabriel Zucman, 2014. "Taxing across Borders: Tracking Personal Wealth and Corporate Profits," Journal of Economic Perspectives, American Economic Association, vol. 28(4), pages 121-148, Fall.
    4. Gabriel Zucman, 2015. "Grenzüberschreitende Besteuerung: Wie Privatvermögen und Unternehmensgewinne erfasst werden können," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 41(1), pages 13-48.
    5. Ferede, Ergete & Dahlby, Bev, 2019. "The Effect of Corporate Income Tax on the Economic Growth Rates of the Canadian Provinces," SPP Technical Papers, The School of Public Policy, University of Calgary, vol. 12(29), September.

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