Discussion of The Effect of State Income Tax Apportionment and Tax Incentives on New Capital Expenditures

Abstract

Gupta and Hofmann (2003) (hereafter GH) examine the impact of four state income tax characteristics on new capital expenditures by businesses within a state. In particular, the authors consider (1) state tax burden (as measured by the product of a state’s highest statutory tax rate and its property factor weight), (2) the number of tax incentives offered by a state, (3) whether a state has unitary reporting, and (4) whether a state has a throwback rule. Unlike prior research, the authors consider all four tax factors in their empirical analyses. Perhaps due to the omission of one or more of these state tax factors, prior research contains conflicting evidence regarding the impact of tax rates and apportionment factors on economic development within the states. I will first analyze the unitary reporting classification scheme utilized in this paper, and then I will evaluate the model specification and estimation procedures. Finally, I will close this discussion with implications for future research.