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The corporate tax, apportionment rules and employment: Evidence using policy discontinuity at U.S. state borders

Eliakim Kakpo

MPRA Paper from University Library of Munich, Germany

Abstract: A recent set of empirical works highlights a puzzling asymmetric response of labor market outcomes to the corporate tax. This paper explores a potential source of this disparity, using differentials in profit accounting rules across U.S. states. I exploit policy discontinuities at state borders by pairing counties in states featuring a tax change with their contiguous counterparts in control states. I notice that corporate tax cuts do not boost employment while tax hikes reduce job creation. The incidence of tax increases on employment seems limited in states with a single sales factor apportionment formula and pronounced in states that use a triple factor apportionment rule. I present a basic conceptual framework that explains this pattern.

Keywords: Keywords: Tax incidence; Profit-shifting; Corporate tax; Profit apportionment; Employment. (search for similar items in EconPapers)
JEL-codes: H22 H25 H71 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc and nep-pbe
Date: 2018-08
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