The effects of state and local taxation on state-specific business investment
Abstract
Over the past twenty years, state and local policy makers have increasingly pursued tax policies that are believed to encourage location-specific investment despite a lack of evidence as to their effectiveness. This dissertation examines the effects of state tax policies on state-specific investment in four industries--adhesives, electronic transformers, pharmaceutical preparations, and semiconductors. The dissertation contributes to the existing literature by first calculating the user cost of capital for each of the industries in every state. The user costs of capital account for the differences in the state and local tax policies. The user costs are then incorporated into a model that estimates the determinants of new plant location for each of the industries. After a review of the literature in the first chapter, the second chapter develops the model for calculating the user costs of capital across states and over time. The model makes use of historical data from Annotated Statute and Assembly Law manuals over the period of 1963-97. There is very little variation in the user cost of capital across states all time periods examined for any of the four industries. This is because most states' income taxes are structured as profit taxes and therefore only have a small impact on the cost of capital within a state. The last chapter estimates a new-plant location choice model for the four industries from 1963-92. The estimating models improve upon the existing literature by incorporating the state user costs of capital and by using an extensive set of data from the US, Census Bureau's Longitudinal Research Database . The results indicate that industry agglomeration and the presence of a major cargo airport significantly influence the location decision. Further, the education level of the local labor force matters in some specifications. However, the results do not indicate a consistent relationship between new plant location and state user costs of capital across the industries and over the time periods considered in this study.
Recommended Citation
Charles Ian Mead,
"The effects of state and local taxation on state-specific business investment"
(January 1, 2001).
Boston College Dissertations and Theses.
Paper AAI3008906.
http://escholarship.bc.edu/dissertations/AAI3008906
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