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State investment tax incentives: what are the facts?

Author

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  • Robert S. Chirinko
  • Daniel J. Wilson

Abstract

There is an ongoing debate in the U.S. among policymakers and the courts concerning the practical effects of state investment tax incentives. However, this debate often suffers from a lack of clear information on the extent of such incentives among states and how these incentives have evolved over time. This paper takes a first step toward addressing this shortcoming. Compiling information from all 50 states and the District of Columbia over the past 40 years, we are able to paint a picture of the variation in state investment tax incentives across states and over time. In particular, we document three stylized facts: (1) Over the last 40 years, state investment tax incentives have become increasingly large and increasingly common among states; (2) these incentives, as well as the level of the overall after-tax price of capital, are to a large extent clustered in certain regions of the country; and (3) states that enact investment tax credits tend to do so around the same time as their neighboring states.

Suggested Citation

  • Robert S. Chirinko & Daniel J. Wilson, 2006. "State investment tax incentives: what are the facts?," Working Paper Series 2006-49, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfwp:2006-49
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    File URL: http://www.frbsf.org/publications/economics/papers/2006/wp06-49bk.pdf
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    References listed on IDEAS

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    1. King, Mervyn A. & Fullerton, Don, 2010. "The Taxation of Income from Capital," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226436319.
    2. Chirinko, Robert S. & Wilson, Daniel J., 2008. "State investment tax incentives: A zero-sum game?," Journal of Public Economics, Elsevier, vol. 92(12), pages 2362-2384, December.
    3. Daniel J. Wilson, 2006. "The mystery of falling state corporate income taxes," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue dec8.
    4. Cornia, Gary & Edmiston, Kelly D. & Sjoquist, David L. & Wallace, Sally, 2005. "The Disappearing State Corporate Income Tax," National Tax Journal, National Tax Association, vol. 58(1), pages 115-138, March.
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    Cited by:

    1. Robert S. Chirinko & Daniel J. Wilson, 2007. "Tax competition among U.S. states: racing to the bottom or riding on a seesaw?," Working Paper Series 2008-03, Federal Reserve Bank of San Francisco.
    2. Wildasin, David E., 2011. "Fiscal competition for imperfectly-mobile labor and capital: A comparative dynamic analysis," Journal of Public Economics, Elsevier, vol. 95(11), pages 1312-1321.
    3. Chirinko, Robert S. & Wilson, Daniel J., 2008. "State investment tax incentives: A zero-sum game?," Journal of Public Economics, Elsevier, vol. 92(12), pages 2362-2384, December.
    4. Ann Markusen (ed.), 2007. "Reining in the Competition for Capital," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number ricc, November.

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    Keywords

    Tax incentives ; Taxation ; State finance;

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