Strategic Apportionment of the State Corporate Income Tax

Kelly D. Edmiston · Andrew T. Young

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Corporate Taxation and Avoidance Local Government Finance and Decentralization Fiscal Policy and Economic Growth

Abstract

Using an eight-region, eight-sector applied general equilibrium model, we find that when imposed independently, single-factor sales policies may have substantially positive economic development impacts in the very long run, but that the magnitude of these effects varies considerably across regions according to their individual characteristics. If all regions act simultaneously, how- ever, there are very clear winners and losers, and the competitive economic development landscape is markedly reshaped. In essence, the apportionment game is a prisoner's dilemma: regardless of the strategies of other states, each state's best economic development strategy is single factor sales. Moreover, we find that the revenue consequences of strategic apportionment policies, which have been under appreciated in both the literature and in state legislatures, are much more substantial in magnitude than are the economic development impacts, and tend to be felt immediately, while eco- nomic development benefits are much longer term in nature.

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References

1991Who Benefits from State and Local Economic Development Policies?1991Jeux Sans Frontieres: Tax Competition and Tax Coordination when Countries Differ in Size 1972The property tax: An excise tax or a profits tax?1986A General Equilibrium Model for Tax Policy Evaluation 2000Coveting thy neighbor’s manufacturing: the dilemma of state income apportionment 1984An Examination of Multijurisdictional Corporate Income Taxes Under Formula Apportionment 1998Taxes, organizational form, and the deadweight loss of the corporate income tax 2000The Weighting Game: Formula Apportionment as an Instrument of Public Policy

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