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

Kakpo, Eliakim (2018): The corporate tax, apportionment rules and employment: Evidence using policy discontinuity at U.S. state borders.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Keywords: Tax incidence, Profit-shifting, Corporate tax, Profit apportionment, Employment.
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H22 - Incidence; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H25 - Business Taxes and Subsidies; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H71 - State and Local Taxation, Subsidies, and Revenue

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