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

79 Pages Posted: 11 Jan 2017

See all articles by Xavier Giroud

Xavier Giroud

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Joshua D. Rauh

Stanford Graduate School of Business; Hoover Institution; National Bureau of Economic Research (NBER)

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Date Written: January 01, 2017

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.

Suggested Citation

Giroud, Xavier and Rauh, Joshua D., State Taxation and the Reallocation of Business Activity: Evidence from Establishment-Level Data (January 01, 2017). US Census Bureau Center for Economic Studies Paper No. CES-WP-17-02, Stanford University Graduate School of Business Research Paper No. 17-7, Available at SSRN: https://ssrn.com/abstract=2896896 or http://dx.doi.org/10.2139/ssrn.2896896

Xavier Giroud (Contact Author)

Columbia Business School - Finance and Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Joshua D. Rauh

Stanford Graduate School of Business ( email )

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Hoover Institution ( email )

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National Bureau of Economic Research (NBER)

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