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Do Property–Casualty Insurance Firms Locate to Minimize Insurance Premium Taxes?

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  • Martin F. Grace
  • David L. Sjoquist

Abstract

States levy insurance premium taxes, which are essentially gross receipt taxes on premiums, with insurance companies paying the higher of the tax rate in the state in which the company is domiciled and the state in which the policy is written. Using firm‐level data for the property–casualty (P‐C) insurance industry, we estimate the extra insurance premium tax that P‐C insurance firms pay by not locating in the state that minimizes their insurance premium taxes. We find that only 4.78 percent of P‐C firms are located in the state that minimizes their insurance premium taxes. We explore the relationship between the extra tax paid and other factors that are thought to be associated with firm location choice. We find that P‐C firms appear to trade off higher taxes to locate in a state that is more urban.

Suggested Citation

  • Martin F. Grace & David L. Sjoquist, 2019. "Do Property–Casualty Insurance Firms Locate to Minimize Insurance Premium Taxes?," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 22(1), pages 101-125, March.
    • Handle: RePEc:bla:rmgtin:v:22:y:2019:i:1:p:101-125
    DOI: 10.1111/rmir.12103
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    References listed on IDEAS

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    1. Martin F. Grace & David L. Sjoquist & Laura Wheeler, 2014. "The Effect of Insurance Premium Taxes on Interstate Differences in the Size of the Property-Casualty Insurance Industry," National Tax Journal, National Tax Association;National Tax Journal, vol. 67(1), pages 151-182, March.
    2. Petroni, Kathy R. & Shackelford, Douglas A., 1995. "Taxation, regulation, and the organizational structure of property-casualty insurers," Journal of Accounting and Economics, Elsevier, vol. 20(3), pages 229-253, December.
    3. Josep‐Maria Arauzo‐Carod & Daniel Liviano‐Solis & Miguel Manjón‐Antolín, 2010. "Empirical Studies In Industrial Location: An Assessment Of Their Methods And Results," Journal of Regional Science, Wiley Blackwell, vol. 50(3), pages 685-711, August.
    4. Michael Wasylenko, 1997. "Taxation and economic development: the state of the economic literature," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 37-52.
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    1. Martin F. Grace & David L. Sjoquist, 2020. "The Effect of Taxes on the Location of Property‐Casualty Insurance Firms," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 87(4), pages 1035-1062, December.

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