Lessons for International Tax Reform from the US State Experience Under Formulary Apportionment

ICTD Research Report 2

39 Pages Posted: 16 May 2014

See all articles by Kimberly A. Clausing

Kimberly A. Clausing

Reed College - Department of Economics

Date Written: March 01, 2014


This work undertakes a comprehensive analysis of the US state experience under formulary apportionment of corporate income. While formulary apportionment eliminates the possibility of shifting income across states through accounting strategies that manipulate where income is booked, it may heighten the tax responsiveness of formula factors. The present analysis uses the substantial variation in corporate tax policy decisions of US states over the period 1986 to 2012 to understand the consequences of formulary apportionment better. It examines the effects of policy choices regarding tax rates, formula weights, and other parameters on economic activity, estimating the tax sensitivity of employment, investment, and sales. With the inclusion of adequate control variables, results indicate that economic activity has not been particularly sensitive to US state corporate tax policy choices, especially in recent years. Still, tax policy choices have important effects on corporate tax revenues. These results suggest important lessons regarding possible international adoption of formulary apportionment.

Keywords: tax competition; formulary apportionment; unitary taxation; corporate taxation; international taxation; state taxation; corporate tax revenue

Suggested Citation

Clausing, Kimberly A., Lessons for International Tax Reform from the US State Experience Under Formulary Apportionment (March 01, 2014). ICTD Research Report 2. Available at SSRN: https://ssrn.com/abstract=2437362 or http://dx.doi.org/10.2139/ssrn.2437362

Kimberly A. Clausing (Contact Author)

Reed College - Department of Economics ( email )

3203 SE Woodstock Boulevard
Portland, OR 97202-8199
United States
503-517-7388 (Phone)
503-777-7776 (Fax)

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