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State Taxation and the Reallocation of Business Activity: Evidence from Establishment-Level Data

Xavier Giroud and Joshua Rauh

No 16103, Economics Working Papers from Hoover Institution, Stanford University

Abstract: Using Census microdata on multi-state firms, we estimate the impact of state taxes on business activity. For C corporations, employment and the number of establishments have corporate tax elasticities of .0.4, and do not vary with changes in personal tax rates. Pass-through entity activities show tax elasticities of -0.2 to -0.3 with respect to personal tax rates, and are invariant with respect to corporate tax rates. Reallocation of productive resources to other states drives around half the effect. Capital shows similar patterns but is 36% less elastic than labor. The responses are strongest for firms in tradable and footloose industries.

Pages: 78 pages
Date: 2016-02
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
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