The Effects of Unemployment Insurance Taxation on Multi-Establishment Firms

Audrey Guo

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates whether and to what extent state-level differences in business taxes influence the location decisions and labor demand of multi-establishment firms. In the United States each state administers its own unemployment insurance (UI) program, and cross-state variation leads to significant differences in the potential UI tax costs faced by employers in different states. Using US Census data on the locations of multi-state manufacturing firms for identification, I find that high tax plants were more likely to exit during economic downturns, and less likely to hire during the recovery. Moving a given plant's outside option from a high tax state to a low tax state would increase its likelihood of exit by 20% during the Great Recession. These findings suggest that decentralized administration of UI taxes may contribute to jobless recoveries and additional misallocation in the economy.

Keywords: Unemployment Insurance; Taxation; Labor Demand; Firm Behavior (search for similar items in EconPapers)
JEL-codes: D22 H25 H71 J23 J65 J68 (search for similar items in EconPapers)
Date: 2020-04-06
New Economics Papers: this item is included in nep-ias, nep-lab and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:97919

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