The Impact of Marginal Business Taxes on State Manufacturing

26 Pages Posted: 30 Mar 2017

See all articles by Richard Funderburg

Richard Funderburg

University of California, Irvine

Timothy Bartik

W.E. Upjohn Institute for Employment Research

Alan H. Peters

University of New South Wales (UNSW)

Peter Fisher

Iowa Policy Project

Date Written: October 2013

Abstract

We estimate the impact of manufacturer business taxes on value added during the 1990s for 15 manufacturing sectors in 20 U.S. states. When the tax climate is properly measured as the potential liability arising from new investment in a state, we estimate that a 10 percent reduction in the effective tax liability is associated with a 3.5 to 5.3 percent increase in value added for the state's targeted manufacturing industry. When we isolate the value of industrial incentives from the basic tax system in our theoretically preferred marginal tax measure, we find that a 10 percent reduction in liability achieved by way of lowering taxes is associated with a 4.5 percent increase in value added while an equivalent reduction achieved by way of increasing incentives is associated with only 1.2 percent industrial growth, the latter elasticity not statistically different from zero.

Suggested Citation

Funderburg, Richard and Bartik, Timothy and Peters, Alan H. and Fisher, Peter, The Impact of Marginal Business Taxes on State Manufacturing (October 2013). Journal of Regional Science, Vol. 53, Issue 4, pp. 557-582, 2013, Available at SSRN: https://ssrn.com/abstract=2943088 or http://dx.doi.org/10.1111/jors.12031

Richard Funderburg (Contact Author)

University of California, Irvine

Campus Drive
Irvine, CA 62697-3125
United States

Timothy Bartik

W.E. Upjohn Institute for Employment Research ( email )

300 South Westnedge Avenue
Kalamazoo, MI 49007-4686
United States

Alan H. Peters

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Peter Fisher

Iowa Policy Project ( email )

Iowa City, IA
United States

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