Tax Exporting Research Articles

Tax Exporting through Federal Deductibility of State and Local Taxes: A Cross-state Analysis

Federal deductibility of certain state and local taxes (SALT) creates an opportunity for state and local governments to export their deductible taxes. Using the Internal Revenue Service's Statistics of Income data, this research estimates the extent to which a state can export its tax burden. The research furthermore shows that a state with higher levels of deductible taxes exports more of its tax burden, and relevant state tax structure features and federal tax reforms infuence the exportability of state and local taxes. The empirical evidence reveals that tax exporting through federal deductibility creates a moral hazard because it incentivizes states and localities to increase their broad-based taxes in the belief that a part of the tax burden will be borne by other jurisdictions. The findings shed light on the ongoing debate on federal policies constraining the deductibility of certain state and local taxes.

A Note On “Capital Tax Exporting in A Model of Strategic Tax Competition”

This note is intended to amend and correct Kunce (2006) originally published in the ICFAI Journal of Public Finance (currently out of print). Aims of this amending note are three-fold, (i) to bring up to date the literature review regarding the prevalence and growing importance of tax exporting in the U.S., (ii) to provide an alternate derivation of the optimal Nash equilibrium, and (iii) to correct errors in equations in the original manuscript.

Efficient Decentralized Environmental Standards from a Model of Strategic Interjurisdictional Competition

The purpose of this paper is to develop a strategic model of interjurisdictional competition where regions choose taxes on two types of capital (locally and absentee owned) and set a level of local environmental quality. Regional strategic interactions are introduced to reinforce the differential returns to and tax treatment of capital types. Moreover, the choice of the level of environmental quality by a jurisdiction is allowed to effect the returns to mobile capital types. The joint determination and fiscal interaction of these three policy variables leads to efficiency in the devolved game. Taxation of mobile capital will not distort the choice of environmental standards when public goods are provided efficiently. Efficiency in public goods provision is enhanced by capital tax exporting.

Easy Money: Tax Exporting and State Support for Higher Education

AbstractThere is a substantial literature that assesses the effects of tax‐exporting capacities on the tax structures and aggregate spending levels that state governments choose to implement, but no work exists that isolates the effects of state tax exporting on higher education spending. Using state‐level data for 1989, 1995, 2002, and 2007, we estimate for the median voter in each state the change in the marginal cost of higher education subsidization generated by tax exportation, and calculate the increased higher education spending that results. We consider three types of spending: state appropriations to public universities as well as need‐ and non‐need‐based aid awarded to in‐state students. We find that neither type of aid is responsive to the marginal cost, or tax price, faced by the median voter. However, the median voter's price elasticity of demand for state appropriations is statistically significant and negative. We find that the median voter's tax price is substantially reduced by the presence of prominent mining and tourism industries and by the federal deductibility offset available to firms. Thus, these tax‐exporting capacities exert upward pressure on voter demand for state appropriations to public universities.

Tax Exporting and the Business Share of Sales Tax Levies

In 2010, state and local sales taxes on non‐labor input purchases made by businesses constituted 42 percent of state and local sales tax revenue, on average. Taxing firms could enable state and local governments to export portions of their tax burdens. The average tax rates that subnational governments choose to levy on business purchases are potentially influenced by the exportability of those taxes as well as on the exportability of alternative taxes. If a state's capacity to export the burdens of alternative taxes is limited, then governments may rely more heavily on business sales taxes. This study examines the relationship between tax exporting and the average sales tax rate that state and local governments choose to levy on business purchases using state‐level panel data from 2003 to 2010. I find that the average sales tax rate is largely determined by a state's ability to export taxes to national taxpayers through the deductibility provisions provided by the federal tax code. The offset provided to firms by the deductibility of state and local business taxes is positively related to the average sales tax rate on business purchases. The deductibility offset available to households that itemize places downward pressure on average sales tax rates. The results suggest that federal tax policies that increase the deductibility offset for firms or reduce the offset for itemizers could prompt subnational governments to increase sales tax levies on business purchases which would increase business tax deductions at the federal level and offset revenue gains from federal tax reform.

Who Really Pays for Medicaid

The goal of the Medicaid intergovernmental matching grant is to stimulate state spending while achieving some level of beneficiary and taxpayer equity. This study uses the Current Population Survey data on 174,031 families to estimate federal and state Medicaid tax burdens per family, net of tax exporting. Of the total US$305 billion spent on Medicaid in 2004, US$29.9 billion is redistributed through the grant’s Federal Medical Assistance Percentage, as residents of low-income states export federal tax burdens to higher-income states. Another US$4.5 billion in state taxes is exported via business flows and tourism with the bulk, US$3.2 billion, being exported internationally. Some states pay as little as US$.55 in “own” tax revenues while residents in states importing the burden pay up to US$1.86, for every US$1 spent on Medicaid. Since virtually all states have regressive tax structures, it is federal Medicaid funding that helps maintain vertical equity overall.

Local Tax Competition and Indirect Tax Exportation

This article studies capital tax competition in a model with external ownership of fixed factors. A simple condition is provided on the feasibility of an efficient Nash equilibrium, which depends only on factor income shares, the elasticity of substitution in production, and the size of the public sector. For a reasonable setting and related values, tax exporting incentives are too weak to cancel out the positive externality of tax competition, leading to the conclusion that the most likely outcome is that there will be an undersupply of public activity.

Tax reform issues in Korea

The relatively simple nature of the tax policy in Korea is changing recently, as widening income gap, unemployment, social expenditures, and decentralization have become important policy issues. In this paper, the tax system in Korea is overviewed, and several important tax reform issues such as economic growth, tax competition, redistribution, tax assignment, and real estate taxes are discussed. The main reform issues are the followings. The tax burden is expected to rise, but the direction of changes in tax mix is not clear since social expenditures can play as important role as direct taxation for redistribution. Taxes related to real estates in Korea are too complicated, and the progressivity is needed to be lessened. The roles of central and local governments with respect to tax policy are not well designed. Redistributive function should be assigned to the central governments, and tax exporting of local governments should be minimized.

Tax exporting : an analysis using a multiregional CG model

This paper investigates whether devoloped coutries export taxes to developed countries export taxes to developing countries, contributing to the deterioration of distribution of gains from trade is being affected not by existing tariffs in developed countries, which are already at low levels but by their domestic taxation.

Local property taxation with external land ownership

When housing in a local jurisdiction is produced using perfectly mobile capital and land owned by non-residents, a property tax on housing results in tax exporting. This paper examines how property tax-poll subsidy policies are determined in the presence of tax exporting, and shows that the optimal property tax is the optimal tariff when residents are homogeneous. When residents have different incomes and are mobile across jurisdictions, the majority voting equilibrium property tax-poll subsidy policy depends on factors such as tax exporting, intrajurisdictional redistribution and congestion. If the effect of intrajurisdictional redistribution is negligible for the median voter, household mobility may result in a property tax-poll subsidy policy that induces emigration of rich households.

A Note on Environmental Federalism: Interpreting Some Contradictory Results

This paper reconciles some conflicting interpretations of recent literature on interjurisdictional environmental regulatory competition.6,7present a model in which competition to attract investment by lowering environmental standards leads to a Pareto-optimal equilibrium.3; and4describe a model in which such competition can result in a suboptimal Nash equilibrium. While it would be possible to draw opposite policy implications from the two models regarding the appropriate degree of environmental federalism, such a conclusion would be incorrect. This paper reconciles the different results by showing that they depend in large part on monopoly profits and tax exporting, not the nature of the pollution externality or environmental federalism.

Tax Exporting, Regional Economic Growth, and Welfare

Long-run exporting and importing of regional taxes is assessed theoretically and empirically using a six-region nonlinear general equilibrium model of the United States. The relationships between tax exporting and three aggregate measures of regional change (value added, welfare of all residents, and welfare of original residents only) are examined empirically. The ability of states to adopt tax structures that successfully impose more of a burden on out-of-state residents does not necessarily promote regional economic growth or welfare, and evaluating tax policy based on its ability to promote economic growth may be misleading if regional welfare is the primary objective.

Tax Exporting, Federal Deductibility, and State Tax Structure

This paper studies the interaction between the federal and state tax systems during the 1980s and, in particular, considers how the Tax Reform Act of 1986 affected state tax structure. Using a panel data set on state governments over a nine-year period, I estimate tax share equations for six categories of taxes. I find that the state personal income tax is sensitive to changes in its tax price, but find a much smaller sensitivity to changes in tax prices for the general sales tax. I then consider various reasons why the sales tax does not exhibit a sensitivity to changes in tax price and consider the implications of these results for policymakers. The regression results suggest that different income groups are concerned with different tax instruments. Moreover, the results motivate a possible benefit approach to taxation at the state level. Linking taxes, about which a particular income group is most concerned, to services received by that group might generate additional political support for state tax systems during a time when many states are facing fiscal crisis.

Comment on "Tax Exporting, Federal Deductibility, and State Tax Structure"

Comment on "Tax Exporting, Federal Deductibility, and State Tax Structure"

Efficient Tax Exporting

In a multijurisdiction economy with free mobility of households between communities, some portion of any community's tax is incident upon nonresident landowners. It is shown that when the objective of a community is taken to be the level of satisfaction of its residents, a fully efficient allocation is a (Nash) equilibrium of the decentralized game. In general, no local tax structure that restricts a community's tax base to residents can attain the optimum; thus, tax exporting is necessary for independent local government behavior to be consistent with efficiency.

Foreign tax credits, the supply of foreign capital, and tax exporting: A numerical general equilibrium model of corporate tax reform in Canada

This paper employs a numerical general equilibrium model to emphasize the importance of tax exporting in determining the welfare effects of tax changes in open economies. Tax exporting occurs through both changes in the terms of trade and changes in the net return paid to foreign- owned capital. Results indicate that tax exporting may be as significant as efficiency in evaluating potential reforms. Moreover, efficiency effects are strongly influenced by whether foreign capital flows are modelled as responding to the gross rental on capital or to the net rental in consideration of the role of foreign tax credits.

Using input-output analysis to estimate tax exporting and tax pyramiding in Hawaii

An input-output model was used to estimate the degree of tax pyramiding and exporting in the State of Hawaii. Tax exporting is an important political objective in export-based economies. The concern of tax pyramiding arises from Hawaii's multi-stage, multi-rate gross receipts tax. This paper briefly describes how the State Input-Output model was modified and used to analyze these two issues. Given specific assumptions on tax shifting by industry and by type of tax, reasonable estimates can be made of the amount of taxes paid by out-of-state consumers (tax exporting) and pattern of price increases across industries and commodities caused by taxes levied on businesses at all stages of production (tax pyramiding). Empirical results are presented for the simplest case analyzed, that of full forward shifting of all taxes.

Tax exporting and the marginal cost of public spending

It is widely held that tax exporting lowers the relative price of public goods and induces inefficiently large amounts of public spending. This paper finds, to the contrary, that the ability to export taxes need not in general lower the effective cost of public spending. A simple model is developed in which a jurisdiction optimizes the mix of taxes between those on traded and non-traded goods. Once this structure is optimally set, the jurisdiction is indifferent between exported and own-source revenues, and the marginal cost of public expenditure is unaffected by the possibility of exporting. This argument is illustrated with an example in which the prohibition of taxation of traded goods results in no change in government spending.

Tax Exporting and the Apportionment Formula

Tax Exporting and the Apportionment Formula

Incidence Analysis and the Supreme Court: An Examination of Four Cases from the 1980 Term

This essay describes the nature and purpose of tax incidence analysis and uses four polar extremes of supply and demand conditions to illustrate the role of short-and long-run considerations, market dominance, substitution in demand and production, factor mobility, and industrial structure in predicting tax incidence and tax exporting. It then examines the incidence (distributional consequences) of three taxes and one regulation at issue in cases decided during the Supreme Court's 1980 Term, most notably Commonwealth Edison v. Montana and Maryland v. Louisiana.