Employing Synthetic Control Method to Examine Whether State Corporate Tax Rate Reductions Grow Manufacturing Employment

Jim Landers and Ivy Liu

Economic Development Quarterly, 2025, vol. 39, issue 2, 99-110

Abstract: This study examines the impact of reductions in Indiana's corporate income tax rate beginning in July 2012. It employs the synthetic control method to construct a counterfactual, or “synthetic Indiana,†using quarterly manufacturing employment data from 23 states that did not change their tax rates during the 2003–2018 study period. The analysis suggests that a weighted combination of Iowa (11.9%), Tennessee (69.5%), Utah (8%), and Wisconsin (10.5%) best predicts the trajectory of manufacturing employment in Indiana from 2003 to 2011 before the rate cuts. Placebo tests and exact p -value estimates are used to test the significance of the employment effects of the corporate income tax rate cuts, and a placebo-date falsification test is used as a robustness test. The test results suggest that the rate cuts did not impact manufacturing employment. Placebo-date falsification tests suggest that changes to the corporate apportionment formula from 2007 to 2011 instead positively affected manufacturing employment.

Keywords: state corporate income tax; economic development; manufacturing employment; synthetic control (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ecdequ:v:39:y:2025:i:2:p:99-110

DOI: 10.1177/08912424241310108

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