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Can lower tax rates be bought? Business rent-seeking and tax competition among U.S.States

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  • Robert S. Chirinko

    (University of Illinois at Chicago)

  • Daniel J. Wilson

    (Federal Reserve Bank of San Francisco)

Abstract

The standard model of strategic tax competition assumes that government policymakers are perfectly benevolent. We depart from this assumption by allowing policymakers to be influenced by the rent-seeking behavior of businesses. Campaign contributions may affect tax competition and enhance or retard the mobility of capital across jurisdictions. Based on a panel of 48 U.S. states and unique data on business campaign contributions, we find that contributions have a significant direct effect on tax policy, the economic value of a $1 business campaign contribution is nearly $4, the slope of the tax reaction function is negative, and the empirical results are sensitive to state effects.

Suggested Citation

  • Robert S. Chirinko & Daniel J. Wilson, 2010. "Can lower tax rates be bought? Business rent-seeking and tax competition among U.S.States," Working Papers 2010/2, Institut d'Economia de Barcelona (IEB).
    • Handle: RePEc:ieb:wpaper:doc2010-2
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    References listed on IDEAS

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    Cited by:

    1. Ivo Bischoff & Stefan Krabel, 2017. "Local taxes and political influence: evidence from locally dominant firms in German municipalities," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(2), pages 313-337, April.
    2. Michael P. Devereux & Simon Loretz, 2013. "What Do We Know About Corporate Tax Competition?," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(3), pages 745-774, September.
    3. Sanz-Córdoba, Patricia, 2020. "The role of infrastructure investment and factor productivity in international tax competition," Economic Modelling, Elsevier, vol. 85(C), pages 30-38.
    4. Denvil Duncan & Ed Gerrish, 2014. "Personal income tax mimicry: evidence from international panel data," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(1), pages 119-152, February.
    5. Chen, Yu-Fu & Funke, Michael, 2010. "Global Warming And Extreme Events: Rethinking The Timing And Intensity Of Environmental Policy," SIRE Discussion Papers 2010-48, Scottish Institute for Research in Economics (SIRE).
    6. Florence Lachet-Touya, 2016. "EU tax competition and tax avoidance: A multiprincipal perspective," Working Papers hal-02939340, HAL.
    7. DE BORGER, Bruno & GLAZER, Amihai, 2010. "Subsidizing consumption to signal quality of workers," Working Papers 2010016, University of Antwerp, Faculty of Business and Economics.
    8. Florence Lachet-Touya, 2016. "Horizontal and Vertical Tax Interactions in a Common Agency Game," Working papers of CATT hal-02939399, HAL.
    9. Chirinko, Robert S. & Wilsom, Daniel J., 2010. "Can Lower Tax Rates Be Bought? Business Rent-Seeking and Tax Competition Among U.S. States," National Tax Journal, National Tax Association;National Tax Journal, vol. 63(4), pages 967-993, December.
    10. Florence TOUYA, 2016. "Horizontal and Vertical Tax Interactions in a Common Agency Game," Working Papers 2015-2016_12, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Aug 2016.
    11. Slattery, Cailin & Tazhitdinova, Alisa & Robinson, Sarah, 2023. "Corporate political spending and state tax policy: Evidence from Citizens United," Journal of Public Economics, Elsevier, vol. 221(C).
    12. Florence Lachet-Touya, 2016. "EU tax competition and tax avoidance: A multiprincipal perspective," Working papers of CATT hal-02939340, HAL.
    13. Bruno De Borger & Amihai Glazer, 2015. "Inducing political action by workers," Southern Economic Journal, John Wiley & Sons, vol. 81(4), pages 1117-1144, April.
    14. Romero, Jorge A., 2022. "Lobbying and political expenses: Complements or substitutes?," Journal of Business Research, Elsevier, vol. 149(C), pages 558-575.
    15. Raymond G. Batina & Gregmar I. Galinato, 2017. "The Spillover Effects of Good Governance in a Tax Competition Framework with a Negative Environmental Externality," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(4), pages 701-724, August.
    16. Segundo Camino‐Mogro, 2023. "Tax incentives, private investment and employment: Evidence from an Ecuadorian reform," Journal of International Development, John Wiley & Sons, Ltd., vol. 35(7), pages 2129-2156, October.
    17. Per G. Fredriksson & Khawaja A. Mamun, 2014. "Tobacco Politics and Electoral Accountability in the United States," Public Finance Review, , vol. 42(1), pages 4-34, January.
    18. Wagner, Gary A. & Elder, Erick M., 2021. "Campaigning for retirement: State teacher union campaign contributions and pension generosity," European Journal of Political Economy, Elsevier, vol. 68(C).
    19. Florence TOUYA, 2016. "EU tax competition and tax avoidance: A multiprincipal perspective," Working Papers 2015-2016_11, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Aug 2016.
    20. Esteller-Moré, Alejandro & Galmarini, Umberto & Rizzo, Leonzio, 2012. "Vertical tax competition and consumption externalities in a federation with lobbying," Journal of Public Economics, Elsevier, vol. 96(3), pages 295-305.
    21. Michael Keen & Kai A. Konrad, 2012. "International Tax Competition and Coordination," Working Papers international_tax_competi, Max Planck Institute for Tax Law and Public Finance.
    22. Florence Lachet-Touya, 2016. "Horizontal and Vertical Tax Interactions in a Common Agency Game," Working Papers hal-02939399, HAL.
    23. Cailin Slattery & Owen Zidar, 2020. "Evaluating State and Local Business Tax Incentives," Working Papers 261, Princeton University, Department of Economics, Center for Economic Policy Studies..
    24. Galinato, Gregmar & Hong, Yeon A., 2018. "Tobacco Education Program Spending and Tobacco Use among Adolescents," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 43(3), September.

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    More about this item

    Keywords

    Campaign contributions; business taxation; state tax competition;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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