Coveting Thy Neighbor?s Manufacturing: The Dilemma of State Income Apportionment
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
Edward L. Maydew
University of North Carolina at Chapel Hill - Accounting Area
Journal of Public Economics
This paper examines the economic impact of the apportionment formulae used to divide corporate income taxes among the states. Since such formulae usually include total payroll, they transform, at least partially, the state corporate income tax into a direct factor tax on payroll. Using panel data from 1978-1994 on state-level employment in manufacturing and other sectors, the results show that this distortion has an important impact, in practice. For the average state, moving from equal-weighted sales to double weighted sales increases manufacturing employment more than 1%. The results also suggest that apportionment changes have important negative externalities on other states. When a state lowers its payroll weight, this increases state within-state employment but reduces out-of-state employment. The aggregate effects are close to zero.
Note: This is a description of the paper and not the actual abstract.
JEL Classification: H22, H25, H23Accepted Paper Series
Date posted: May 25, 1999
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