state tax policy and entrepreneurship n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
State Tax Policy and Entrepreneurship PowerPoint Presentation
Download Presentation
State Tax Policy and Entrepreneurship

Loading in 2 Seconds...

play fullscreen
1 / 21

State Tax Policy and Entrepreneurship - PowerPoint PPT Presentation


  • 121 Views
  • Uploaded on

State Tax Policy and Entrepreneurship. Donald Bruce, Xiaowen Liu, and Matthew Murray Center for Business and Economic Research and Department of Economics The University of Tennessee, Knoxville Conference on Subnational Government Competition The University of Tennessee April 25, 2014.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'State Tax Policy and Entrepreneurship' - hayley


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
state tax policy and entrepreneurship
State Tax Policy and Entrepreneurship

Donald Bruce, Xiaowen Liu, and Matthew Murray

Center for Business and Economic Research and

Department of Economics

The University of Tennessee, Knoxville

Conference on Subnational Government Competition

The University of Tennessee

April 25, 2014

policy background
Policy Background
  • States have a long history of using income and sales tax policy to compete for mobile entrepreneurs and/or encourage new ones
    • 2012: Kansas removes income tax on pass-through income
    • 2014: Missouri considers 25% deduction of pass-through income
    • Other states considering income tax repeal, with small business promotion as one selling point
  • Empirical literature has not generally supported this at the state level
contributions
Contributions
  • Intensive-margin indicators of success
    • Most prior work is on extensive margin
    • Policy makers care more about success
  • Dynamic panel regression
    • Most prior work uses fixed effects
    • Underlying trends matter
  • Expanded specification and time period
    • 1978-2009
measures of performance
Measures of Performance
  • Nonfarm Proprietors’ Income (NFPI)
    • Per capita
    • As a % of total state personal income
    • As a % of national NFPI
  • Nonfarm Proprietors’ Employment (NFPE)
    • As a % of total state employment
    • As a % of national NFPE
  • Nonfarm Proprietors’ Productivity
    • NFPI/NFPE
empirical approach
Empirical Approach
  • Past performance can predict future
  • Arellano-Bond (1991) estimator
    • Y is the outcome of interest
    • X includes state policy characteristics
    • Z includes state economic/demographic factors
    • is a state fixed effect
    • is a year fixed effect
    • is a well-behaved error
ab 101
AB 101
  • Addresses time series issues in panel data
  • Model transformed to first-difference
    • Removes state fixed effect
  • Inclusion of lagged Y raises endogeneity concern; external instruments not required
  • Arellano-Bover (1995) / Blundell-Bond (1998) approach used as an alternative
independent variables
Independent Variables
  • Policy
    • Sales tax rate
    • Top marginal personal income tax (PIT) rate
    • Top marginal corporate income tax (CIT) rate
    • Sales factor weight in CIT apportionment
    • Per capita state government expenditures
    • Tax Amnesty programs
  • Economic/Demographic
    • Unemployment rate
    • % of population aged 65 and older
    • Crime rate
    • % female
    • Agricultural, Manufacturing % of GSP
    • Nonfarm job growth
    • Population density
discussion
Discussion
  • Main result echoes Bruce & Deskins (2012): taxes generally don’t matter
    • Higher sales factor weight  lower NFPI per capita and lower NFP productivity
    • Higher state gov’t. expend. per capita  higher NFP productivity
  • Other controls matter
    • Higher unemployment  higher NFPI/E shares
    • Older population  lower NFPE share; higher NFP productivity
    • Higher NF job growth  higher NFPI/E shares; lower NFP productivity
    • Lower crime rate  higher NFPI per capita
    • Higher pop. Density  higher NFPE share
    • Lower GSP shares in manufacturing or agriculture  higher NFPI
  • Lags always matter (dynamic specification is important)
discussion1
Discussion
  • Simply adding (1) variables or (2) years of data or (3) estimating an AB model would have generated misleading significance
  • The combination of these three updates is important
  • The additional years of data (2003-2009) are enough to drive the importance of a dynamic estimation approach