Coveting Thy Neighbor's Manuafacturing: The Dilemma of State Income Apportionment / Austan Goolsbee, Edward L. Maydew.

Format:

Book

Author/Creator:

Goolsbee, Austan.

Contributor:

National Bureau of Economic Research.

Maydew, Edward L.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6614.

NBER working paper series no. w6614

Language:

English

Subjects (All):

Job creation--Econometric models.

Job creation.

Labor supply--Effect of taxation on--Econometric models.

Labor supply.

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Coveting Thy Neighbor's Manuafacturing

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1998.

Cambridge, Massachusetts : National Bureau of Economic Research, 1998.

Summary:

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.

Notes:

Print version record

June 1998.