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Do States Choose Their Mix of Taxes to Minimize Employment Losses?

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  • Harden, J. William
  • Hoyt, William H.

Abstract

We consider the mix of taxes chosen by a state government to minimize reductions in employment growth. The optimal mix of taxes requires that the decrease in employment growth for an additional dollar of revenue is equal for all taxes. We test this prediction using state-level data from 1980-1994. We find the corporate income tax has a significant negative impact on employment while the sales and individual income taxes do not. Our results also suggest that states are not choosing the mix of taxes to minimize losses in employment growth with corporate income taxes set relatively too high.

Suggested Citation

  • Harden, J. William & Hoyt, William H., 2003. "Do States Choose Their Mix of Taxes to Minimize Employment Losses?," National Tax Journal, National Tax Association;National Tax Journal, vol. 56(1), pages 7-26, March.
    • Handle: RePEc:ntj:journl:v:56:y:2003:i:1:p:7-26
    DOI: 10.17310/ntj.2003.1.01
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    References listed on IDEAS

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    1. Papke, Leslie E., 1991. "Interstate business tax differentials and new firm location : Evidence from panel data," Journal of Public Economics, Elsevier, vol. 45(1), pages 47-68, June.
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    Cited by:

    1. Dan Rickman & Hongbo Wang, 2020. "U.S. State And Local Fiscal Policy And Economic Activity: Do We Know More Now?," Journal of Economic Surveys, Wiley Blackwell, vol. 34(2), pages 424-465, April.
    2. Ojede, Andrew & Yamarik, Steven, 2012. "Tax policy and state economic growth: The long-run and short-run of it," Economics Letters, Elsevier, vol. 116(2), pages 161-165.
    3. William H. Hoyt & J. William Harden, 2005. "MSA Location and the Impact of State Taxes on Employment and Population: A Comparison of Border and Interior MSA's," Working Papers 2005-01, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
    4. Julien Albertini & Xavier Fairise & Anthony Terriau, 2024. "Corporate taxation and firm heterogeneity," Working Papers 2410, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    5. Amy Hageman & Donna Bobek & LeAnn Luna, 2015. "The Influence of State Sales and Use Taxes on Manufacturers’ Capital Expenditures and Employment," Public Finance Review, , vol. 43(4), pages 458-484, July.
    6. Yuya Kikuchi & Toshiki Tamai, 2019. "Tax competition, unemployment, and intergovernmental transfers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(4), pages 899-918, August.
    7. Sohani Fatehin & David L. Sjoquist, 2021. "State and Local Taxes and Employment by Wage Level," Economic Development Quarterly, , vol. 35(1), pages 53-65, February.
    8. Andrew Ojede & Bebonchu Atems & Steven Yamarik, 2018. "The Direct and Indirect (Spillover) Effects of Productive Government Spending on State Economic Growth," Growth and Change, Wiley Blackwell, vol. 49(1), pages 122-141, March.
    9. Michael Mamo, 2023. "Direct Versus Indirect Taxes and State Income Growth: 1991–2015," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 49(4), pages 516-548, October.
    10. John Deskins & Brian Hill & Laura Ullrich, 2010. "Education Spending and State Economic Growth: Are All Dollars Created Equal?," Economic Development Quarterly, , vol. 24(1), pages 45-59, February.
    11. Toshiki Tamai, 2022. "Unemployment, Fiscal Competition, and the Composition of Public Expenditure," KIER Working Papers 1072, Kyoto University, Institute of Economic Research.
    12. Zuo, Shengqiang & Wu, Bangzheng & Feng, Jun, 2023. "Does government reduction of the corporate income tax rate increase employment? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 365-372.

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