Empirical Evidence on the Revenue Effects of State Corporate Income Tax Policies
32 Pages Posted: 23 Jul 2008 Last revised: 22 Sep 2010
Date Written: June 1, 2009
Using fixed-effects models of state corporate income tax (SCIT) revenues that account for the endogeneity of apportionment formula weights and tax rates, we find that states with a double-weighted sales factor experience lower SCIT revenues than do states with an equally-weighted sales factor, while higher statutory tax rates are associated with higher SCIT revenues. We also find that several other tax policies have statistically and economically significant associations with SCIT revenues. Use of a throwback rule and defining business income more broadly are associated with higher SCIT revenues, while combined reporting surprisingly is not significantly associated with SCIT revenues.
Keywords: State corporate income tax revenues, tax accounting policies, formula apportionment
JEL Classification: H25, H71, H73
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