Coveting Thy Neighbor's Manuafacturing: The Dilemma of State Income Apportionment
This paper investigates the economic impact of the apportionment formulae used to divide corporate income taxes among the states. Most apportionment formulae, by including payroll, turn the state corporate income tax at least partially into a payroll tax. Using panel data from 1978 - 1994, the results show that this distortion has an important effect on state-level employment. For the average state, reducing the payroll weight from one-third to one-quarter increases manufacturing employment around 3% and the result is highly robust. The results also indicate that apportionment changes have important negative externalities on other states in that the effects of the apportionment formula on aggregate employment is zero. Every job gained within a state from an apportionment change is taken from another state. This externality suggests that the U.S. would be better off if the apportionment formula were set at a federal level. The paper also shows that because the payroll component of the tax is administered on top of the existing payroll tax, the deadweight loss from this component of state corporate income taxation may be significant, despite the low tax rates.
|Date of creation:||Jun 1998|
|Publication status:||published as Journal of Public Economics, Vol. 75, no. 1 (January 2000): 125-143.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bartik, Timothy J, 1985. "Business Location Decisions in the United States: Estimates of the Effects of Unionization, Taxes, and Other Characteristics of States," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(1), pages 14-22, January.
- Gordon, Roger H. & MacKie-Mason, Jeffrey K., 1994.
"Tax distortions to the choice of organizational form,"
Journal of Public Economics,
Elsevier, vol. 55(2), pages 279-306, October.
- Roger H. Gordon & Jeffrey K. MacKie-Mason, 1992. "Tax Distortions to the Choice of Organizational Form," NBER Working Papers 4227, National Bureau of Economic Research, Inc.
- Gordon, R.H. & Mackie-Mason, J.K., 1993. "Tax Distorsions to the Choice of Organizational Form," Memorandum 21/1993, Oslo University, Department of Economics.
- Roger H. Gordon & Jeffrey K. MacKie--Mason, 1994. "Tax Distortions to the Choice of Organizational Form," Public Economics 9401004, EconWPA, revised 18 Jan 1994.
- Goolsbee, Austan & Maydew, Edward L., 2000. "Coveting thy neighbor's manufacturing: the dilemma of state income apportionment," Journal of Public Economics, Elsevier, vol. 75(1), pages 125-143, January.
- Austan Goolsbee & Edward L. Maydew, 1998. "Coveting Thy Neighbor's Manuafacturing: The Dilemma of State Income Apportionment," NBER Working Papers 6614, National Bureau of Economic Research, Inc.
- Mackie-Mason, Jeffrey K & Gordon, Roger H, 1997. " How Much Do Taxes Discourage Incorporation?," Journal of Finance, American Finance Association, vol. 52(2), pages 477-505, June.
- Jeffrey K. MacKie-Mason & Roger H. Gordon, 1991. "How Much Do Taxes Discourage Incorporation," NBER Working Papers 3781, National Bureau of Economic Research, Inc.
- Jeffrey K. MacKie-Mason & Roger H. Gordon, 1994. "How Much Do Taxes Discourage Incorporation?," Public Economics 9401002, EconWPA.
- Hines, James R, Jr, 1996. "Altered States: Taxes and the Location of Foreign Direct Investment in America," American Economic Review, American Economic Association, vol. 86(5), pages 1076-1094, December.
- James R. Hines Jr., 1993. "Altered States: Taxes and the Location of Foreign Direct Investment in America," NBER Working Papers 4397, National Bureau of Economic Research, Inc.
- Douglas Shackelford & Joel Slemrod, 1998. "The Revenue Consequences of Using Formula Apportionment to Calculate U.S. and Foreign-Source Income: A Firm-Level Analysis," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 5(1), pages 41-59, February.
- Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
- Anderson, Patricia M. & Meyer, Bruce D., 1997. "The effects of firm specific taxes and government mandates with an application to the U.S. unemployment insurance program," Journal of Public Economics, Elsevier, vol. 65(2), pages 119-145, August.
- Papke, Leslie E., 1991. "Interstate business tax differentials and new firm location : Evidence from panel data," Journal of Public Economics, Elsevier, vol. 45(1), pages 47-68, June.
- Leslie E. Papke, 1989. "Interstate Business Tax Differentials and New Firm Location: Evidence from Panel Data," NBER Working Papers 3184, National Bureau of Economic Research, Inc.
- Leslie E. Papke, 1993. "What Do We Know about Enterprise Zones?," NBER Chapters,in: Tax Policy and the Economy, Volume 7, pages 37-72 National Bureau of Economic Research, Inc.
- Leslie E. Papke, 1993. "What Do We Know about Enterprise Zones?," NBER Working Papers 4251, National Bureau of Economic Research, Inc.
- Gordon, Roger H & Wilson, John Douglas, 1986. "An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment," Econometrica, Econometric Society, vol. 54(6), pages 1357-1373, November.
- Goolsbee, Austan, 1998. "Taxes, organizational form, and the deadweight loss of the corporate income tax," Journal of Public Economics, Elsevier, vol. 69(1), pages 143-152, July.
- Austan Goolsbee, 1997. "Taxes, Organizational Form, and the Deadweight Loss of the Corporate Income Tax," NBER Working Papers 6173, National Bureau of Economic Research, Inc.
This item is featured on the following reading lists or Wikipedia pages:
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:6614. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.