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State business taxes and investment: state-by-state simulations

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  • Robert S. Chirinko
  • Daniel J. Wilson

Abstract

This article develops a framework for simulating the effects of state business taxes on state investment and output. Our simulations provide the predicted increase in investmentboth in equipment and structures (E&S) and in research and development (R&D)and the predicted increase in output for a given state resulting from a specified change in one of its three tax policiesthe E&S investment tax credit, the R&D tax credit, or the corporate income tax. The simulations depend on a set of formulas linking economic parameters and state data to investment and output, all of which are reported in this article. We report results, based on our preferred set of parameters, for each of the 48 contiguous states. We also discuss alternative parameter values and explore the resulting sensitivity of predicted changes in state investment and output. Finally, we describe a simple web tool that we have made available online (www.frbsf.org/csip/taxapp.php) that allows users to insert their own preferred parameter values and simulate the economic effects for the state and tax policy of their choosing.

Suggested Citation

  • Robert S. Chirinko & Daniel J. Wilson, 2010. "State business taxes and investment: state-by-state simulations," Economic Review, Federal Reserve Bank of San Francisco, pages 13-28.
    • Handle: RePEc:fip:fedfer:y:2010:p:13-28
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    References listed on IDEAS

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    Cited by:

    1. Timothy J. Bartik & George A. Erickcek, 2012. "Simulating the Effects of Michigan's MEGA Tax Credit Program on Job Creation and Fiscal Benefits," Upjohn Working Papers 12-185, W.E. Upjohn Institute for Employment Research.
    2. Timothy J. Bartik & George Erickcek, 2014. "Simulating the Effects of the Tax Credit Program of the Michigan Economic Growth Authority on Job Creation and Fiscal Benefits," Economic Development Quarterly, , vol. 28(4), pages 314-327, November.
    3. Timothy J. Bartik & Kevin Hollenbeck, 2012. "An Analysis of the Employment Effects of the Washington High Technology Business and Occupation (B&O) Tax Credit," Upjohn Working Papers 12-187, W.E. Upjohn Institute for Employment Research.

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    Taxation; state finances;

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