State Investment Tax Incentives: A Zero-Sum Game?

CESifo Working Paper Series No. 1895

FRB of San Francisco Working Paper No. 2006-47

55 Pages Posted: 29 Jan 2007

See all articles by Robert S. Chirinko

Robert S. Chirinko

University of Illinois at Chicago, Department of Finance; CESifo (Center for Economic Studies and Ifo Institute)

Daniel J. Wilson

Federal Reserve Bank of San Francisco

Date Written: January 2007

Abstract

Though the U.S. federal investment tax credit (ITC) was permanently repealed in 1986, state-level ITCs have proliferated over the last few decades. Are these tax incentives effective in increasing investment within the state? How much of this increase is due to investment drawn away from other states? Based on a panel dataset for all 50 states, we find a significant channel for state tax incentives on own-state economic activity and document the importance of interstate capital flows. Whether state investment incentives are a zero-sum game is less certain and depends on the definition of the set of competitive states.

Keywords: state tax incentives, interstate tax competition, business taxes

JEL Classification: H71, H77, H25, H32

Suggested Citation

Chirinko, Robert S. and Wilson, Daniel J., State Investment Tax Incentives: A Zero-Sum Game? (January 2007). CESifo Working Paper Series No. 1895; FRB of San Francisco Working Paper No. 2006-47. Available at SSRN: https://ssrn.com/abstract=960019

Robert S. Chirinko (Contact Author)

University of Illinois at Chicago, Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States

HOME PAGE: http://tigger.uic.edu/~chirinko/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Daniel J. Wilson

Federal Reserve Bank of San Francisco ( email )

101 Market Street
Mail Stop 1130
San Francisco, CA 94105
United States

HOME PAGE: http://www.frbsf.org/economics/economists/dwilson.html

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