The Effect of Taxes on the Location of Property‐Casualty Insurance Firms

28 Pages Posted: 6 Nov 2020

See all articles by Martin F. Grace

Martin F. Grace

Temple University - Risk Management & Insurance & Actuarial Science

David L. Sjoquist

Georgia State University

Multiple version iconThere are 2 versions of this paper

Date Written: December 2020

Abstract

States levy insurance premium taxes, which are essentially gross receipt taxes on premiums. An unusual characteristic of insurance premium taxes is that in each state in which an insurance company writes premiums, the firm pays the higher of the tax rate in the state in which the company is domiciled and the state in which the policy is written. Thus, the choice of location has a significant effect on the firm's tax liability. Using firm‐level data for the property‐casualty (P‐C) insurance industry, we calculate the firm‐specific tax rate for each P‐C firm for every possible state of domicile. We estimate conditional logistic models to analyze the effect of insurance premium taxes on the choice of the state of domicile of existing and relocated firms. We find robust evidence of a small, negative, and statistically significant effect of these taxes on the choice of the state of domicile.

Suggested Citation

Grace, Martin F. and Sjoquist, David L., The Effect of Taxes on the Location of Property‐Casualty Insurance Firms (December 2020). Journal of Risk and Insurance, Vol. 87, Issue 4, pp. 1035-1062, 2020, Available at SSRN: https://ssrn.com/abstract=3725583 or http://dx.doi.org/10.1111/jori.12298

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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