Do Property–Casualty Insurance Firms Locate to Minimize Insurance Premium Taxes?

25 Pages Posted: 12 Mar 2019

See all articles by Martin F. Grace

Martin F. Grace

Temple University - Risk Management & Insurance & Actuarial Science

David L. Sjoquist

Georgia State University

Date Written: Spring 2019

Abstract

States levy insurance premium taxes, which are essentially gross receipt taxes on premiums, with insurance companies paying the higher of the tax rate in the state in which the company is domiciled and the state in which the policy is written. Using firm‐level data for the property–casualty (P‐C) insurance industry, we estimate the extra insurance premium tax that P‐C insurance firms pay by not locating in the state that minimizes their insurance premium taxes. We find that only 4.78 percent of P‐C firms are located in the state that minimizes their insurance premium taxes. We explore the relationship between the extra tax paid and other factors that are thought to be associated with firm location choice. We find that P‐C firms appear to trade off higher taxes to locate in a state that is more urban.

Suggested Citation

Grace, Martin F. and Sjoquist, David L., Do Property–Casualty Insurance Firms Locate to Minimize Insurance Premium Taxes? (Spring 2019). Risk Management and Insurance Review, Vol. 22, Issue 1, pp. 101-125, 2019, Available at SSRN: https://ssrn.com/abstract=3349351 or http://dx.doi.org/10.1111/rmir.12103

Martin F. Grace (Contact Author)

Temple University - Risk Management & Insurance & Actuarial Science ( email )

Fox School of Business and Management
1301 Cecil B. Moore Ave.
Philadelphia, PA 19122
United States

David L. Sjoquist

Georgia State University ( email )

P.O. Box 3992
Atlanta, GA 30302-3992
United States
404-413-0246 (Phone)

HOME PAGE: http://frp.aysps.gsu.edu/sjoquist/index.html

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