Interstate business tax differentials and new firm location

A panel data set of manufacturing firm start-ups is used to examine the impact of state and local tax differentials on the location of industry. The number of firm start-ups is modeled as a Poisson count process. The estimation technique explicitly accounts for unobserved location or state heterogen...

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Bibliographic Details
Published in:Journal of public economics 1991-06, Vol.45 (1), p.47-68
Main Author: Papke, Leslie E.
Format: Article
Language:English
Subjects:
Comparative studies
Differentials
Economic models
Economic theory
Impacts
Location of industry
Startups
State taxes
Statistical analysis
Tax rates
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Summary:A panel data set of manufacturing firm start-ups is used to examine the impact of state and local tax differentials on the location of industry. The number of firm start-ups is modeled as a Poisson count process. The estimation technique explicitly accounts for unobserved location or state heterogeneity in the estimation. The analysis also considers the development of an industry-specific and year-specific series of effective tax rates for each state. After controlling for state and industry effects, the estimates indicate that a high state marginal effective tax rate reduces the number of firm start-ups for 1/2 of the industries examined. Economic factors are shown to play an important role in manufacturing location, even after accounting for state heterogeneity. In addition, industries differ markedly in their responsiveness to variations in state economic characteristics. These results highlight the importance of accounting for unmeasured state heterogeneity in order to obtain consistent estimates of tax effects.
ISSN:0047-2727
1879-2316
DOI:10.1016/0047-2727(91)90047-6