Working Paper

State investment tax incentives: what are the facts?

Abstract: There is an ongoing debate in the U.S. among policymakers and the courts concerning the practical effects of state investment tax incentives. However, this debate often suffers from a lack of clear information on the extent of such incentives among states and how these incentives have evolved over time. This paper takes a first step toward addressing this shortcoming. Compiling information from all 50 states and the District of Columbia over the past 40 years, we are able to paint a picture of the variation in state investment tax incentives across states and over time. In particular, we document three stylized facts: (1) Over the last 40 years, state investment tax incentives have become increasingly large and increasingly common among states; (2) these incentives, as well as the level of the overall after-tax price of capital, are to a large extent clustered in certain regions of the country; and (3) states that enact investment tax credits tend to do so around the same time as their neighboring states.

Keywords: Tax incentives; Taxation; state finances;

Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Working Paper Series

Publication Date: 2006

Number: 2006-49