State user costs of capital
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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- 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.
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NBER Working Papers
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- Don Fullerton, 1983. "Which Effective Tax Rate?," NBER Working Papers 1123, National Bureau of Economic Research, Inc.
- 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, 06.
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