Working Paper: NBER ID: w23653
Authors: Juan Carlos Suarez Serrato; Owen M. Zidar
Abstract: This paper documents facts about the state corporate tax structure | tax rates, base rules, and credits | and investigates its consequences for state tax revenue and economic activity. We present three main findings. First, tax base rules and credits explain more of the variation in state corporate tax revenues than tax rates do. Second, although states typically do not offset tax rate changes with base and credit changes, the effects of tax rate changes on tax revenue and economic activity depend on the breadth of the base. Third, as states have narrowed their tax bases, the relationship between tax rates and tax revenues has diminished. Overall, changes in state tax bases have made the state corporate tax system more favorable for corporations and are reducing the extent to which tax rate increases raise corporate tax revenue.
Keywords: state corporate taxation; tax revenues; economic activity; tax base rules; tax credits
JEL Codes: H2; H25; H71; R5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| changes in tax base rules and credits (H20) | variation in state corporate tax revenues (H71) |
| narrower tax bases (H29) | less revenue from tax rate increases (H29) |
| tax base provisions (H20) | effects of tax rate changes on state GDP (H73) |
| structure of corporate tax system (K34) | revenue-maximizing tax rates (H21) |
| tax cuts (H29) | hypothesis that they pay for themselves (D29) |