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State Taxation and the Reallocation of Business Activity: Evidence from Establishment-Level Data

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  • Xavier Giroud
  • Joshua Rauh

Abstract

Using Census microdata on multi-state firms, we estimate the impact of state taxes on business activity. For C corporations, employment and the number of establishments have corporate tax elasticities of -0.4, and do not vary with changes in personal tax rates. Pass-through entity activities show tax elasticities of -0.2 to -0.3 with respect to personal tax rates, and are invariant with respect to corporate tax rates. Reallocation of productive resources to other states drives around half the effect. Capital shows similar patterns but is 36% less elastic than labor. The responses are strongest for firms in tradable and footloose industries.

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  • Xavier Giroud & Joshua Rauh, 2017. "State Taxation and the Reallocation of Business Activity: Evidence from Establishment-Level Data," Working Papers 17-02, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:17-02
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    7. Michael Smolyansky, 2016. "Policy Externalities and Banking Integration," Finance and Economics Discussion Series 2016-8, Board of Governors of the Federal Reserve System (U.S.).
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    9. Lee, Jungho & Xu, Jianhuan, 2019. "Tax uncertainty and business activity," Journal of Economic Dynamics and Control, Elsevier, vol. 103(C), pages 158-184.
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