Abstract
We investigate state tax competition for capital and jobs, focusing on the business income apportionment formula. We look for associations between states' apportionment formula changes and competing states' changes using event history analysis. We test for a positive association between our tax competition proxies and apportionment formula change while controlling for economic, political, and regional diffusion influences on tax policy. Our results support the hypothesized positive association. We conclude that state governments compete for capital and jobs and respond to their competitors' tax policy decisions with conforming policy changes. Our study contributes to the empirical tax literature on state and local tax policy.
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