The Influence of State Sales and Use Taxes on Capital Expenditures and Manufacturing Employment

Public Finance Review, 43(4): 458-484, 2015

27 Pages Posted: 16 Aug 2015

See all articles by Donna Bobek

Donna Bobek

University of Central Florida

Amy M. Hageman

Kansas State University

LeAnn Luna

University of Tennessee, Knoxville - College of Business Administration - Center for Business and Economic Research

Date Written: July 1, 2014

Abstract

This study investigates the relationship between the state sales and use tax burden and manufacturing firms’ employment and capital expenditures for the period 1983-2006. Using an instrumental variable model, our results indicate that the state sales and use tax burden (i.e., the product between the sales and use tax rate and sales and use tax exemptions) on purchases of materials and machinery is related to changes in capital expenditures and employment, even after controlling for corporate income tax variables and other economic factors. The economic impact of this relationship is relatively small; however, the results have important policy implications in the present lean state budget environment, as state legislators must balance revenue needs with the desire to provide economic development incentives.

Suggested Citation

Bobek, Donna and Hageman, Amy M. and Luna, LeAnn, The Influence of State Sales and Use Taxes on Capital Expenditures and Manufacturing Employment (July 1, 2014). Public Finance Review, 43(4): 458-484, 2015. Available at SSRN: https://ssrn.com/abstract=2644424

Donna Bobek

University of Central Florida ( email )

4000 Central Florida Blvd
Orlando, FL 32816-1400
United States
407-823-3082 (Phone)

Amy M. Hageman

Kansas State University ( email )

Manhattan, KS 66506-4001
United States

LeAnn Luna (Contact Author)

University of Tennessee, Knoxville - College of Business Administration - Center for Business and Economic Research ( email )

711 Stokely Management Center
Knoxville, TN 37996-4334
United States
865-974-6080 (Phone)
865-974-3100 (Fax)

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