The impacts of taxes on firm entry rates along state borders

Kevin D. Duncan

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: This paper uses a regression discontinuity approach to estimate the impacts of taxes on firm entry rates between neighboring states. We utilize matched county pairs as an approximate bandwidth around the discontinuity in state policies imposed at their border. This estimation strategy controls for unobserved location specific determinants of firm entry, as well as policy responses to shocks shared across borders. We estimate this impact using a sample of 107 state-border pairs between 1999 and 2009. We add to the literature by using the large array of top marginal tax rates, including property, income, sales, corporate, capital gains, workers compensation, and unemployment insurance tax rates. This controls for joint changes in tax rates that governments may implement to accomplish policy goals. Our results indicate thatproperty, sales, and income taxes have the largest negative effect on firm start up rates.

Date: 2016-01-01
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Persistent link: https://EconPapers.repec.org/RePEc:isu:genstf:201601010800006700

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