THE IMPACT OF MARGINAL BUSINESS TAXES ON STATE MANUFACTURING |
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| Authors: | Richard Funderburg Timothy J Bartik Alan H Peters Peter S Fisher |
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| Institution: | 1. The University of Iowa, School of Urban and Regional Planning, , Iowa City, IA, 52242‐1316;2. W.E. Upjohn Institute for Employment Research, 300 S Westnedge Avenue, , Kalamazoo, MI, 49007–4686;3. University of New South Wales, Faculty of Built Environment, West Wing, Red Centre Building, Kensington Campus, , Sydney, NSW, 2052 Australia;4. Iowa Policy Project, , Iowa City, IA, 52245 |
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| 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. |
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