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The Influence of State Sales and Use Taxes on Manufacturers’ Capital Expenditures and Employment

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  • Amy Hageman
  • Donna Bobek
  • LeAnn Luna

Abstract

This study investigates the relationship between the state sales and use tax (SUT) burden and manufacturing firms’ employment and capital expenditures for the period 1983–2006. Using an instrumental variable model, our results indicate that the SUT burden (i.e., the product between the sales and use tax rate and sales and use tax exemptions) on purchases of materials and machinery is related to changes in capital expenditures and employment, even after controlling for corporate income tax variables and other economic factors. The economic impact of this relationship is relatively small; however, the results have important policy implications in the present lean state budget environment, as state legislators must balance revenue needs with the desire to provide economic development incentives.

Suggested Citation

  • 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.
    • Handle: RePEc:sae:pubfin:v:43:y:2015:i:4:p:458-484
    DOI: 10.1177/1091142113505192
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    References listed on IDEAS

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    Cited by:

    1. Agus Sholikhan Yulianto & Anis Chariri, 2019. "The Role of Indonesian Tax Reform in Boosting Export Performance of Manufacturing Sectors," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 343-352.
    2. Gary, Robert F. & Moore, Jared A. & Sisneros, Craig A. & Terando, William D., 2016. "The impact of tax rate changes on intercorporate investment," Advances in accounting, Elsevier, vol. 34(C), pages 55-63.

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