TY  - JOUR
AU  - Goolsbee,Austan
AU  - Maydew,Edward L
TI  - Coveting Thy Neighbor's Manuafacturing:  The Dilemma of State Income    Apportionment
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6614
PY  - 1998
Y2  - June 1998
UR  - http://www.nber.org/papers/w6614
L1  - http://www.nber.org/papers/w6614.pdf
N1  - Author contact info:
Austan Goolsbee
Booth School of Business
University of Chicago
5807 S. Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-5869
Fax: 773/702-0458
E-Mail: goolsbee@chicagobooth.edu

Edward Maydew
Kenan-Flager Business School
University of North Carolina-Chapel Hill
Campus Box 3490, McColl Building
Chapel Hill, NC 27599-3490
E-Mail: edward_maydew@unc.edu
AB  - This paper investigates the economic impact of the apportionment formulae used to divide corporate income taxes among the states. Most apportionment formulae, by including payroll, turn the state corporate income tax at least partially into a payroll tax. Using panel data from 1978 - 1994, the results show that this distortion has an important effect on state-level employment. For the average state, reducing the payroll weight from one-third to one-quarter increases manufacturing employment around 3% and the result is highly robust.  The results also indicate that apportionment changes have important negative externalities on other states in that the effects of the apportionment formula on aggregate employment is zero.  Every job gained within a state from an apportionment change is taken from another state.  This externality suggests that the U.S. would be better off if the apportionment formula were set at a federal level.  The paper also shows that because the payroll component of the tax is administered on top of the existing payroll tax, the deadweight loss from this component of state corporate income taxation may be significant, despite the low tax rates.
ER  -