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Tax uncertainty and business activity

Jungho Lee and Jianhuan Xu

Journal of Economic Dynamics and Control, 2019, vol. 103, issue C, 158-184

Abstract: We investigate the extent to which uncertainties about tax policies affect business activities. We develop a statewide tax-uncertainty measure (TU measure) and show that it captures state corporate tax uncertainty. By comparing adjacent counties across state borders, we show that increasing tax uncertainty by one standard deviation (a 30% increase in the TU measure) leads to a 0.17% point per-year decrease in the growth rate of establishments over two years. The result holds after conducting a variety of robustness checks and is not likely to be driven by general state-policy uncertainties.

Keywords: State government; Uncertainty; Entrepreneurship (search for similar items in EconPapers)
JEL-codes: D8 E22 E32 H20 (search for similar items in EconPapers)
Date: 2019
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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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Handle: RePEc:eee:dyncon:v:103:y:2019:i:c:p:158-184