The impact of state personal and corporate tax rates on firm location

Abstract

The present study attempts to determine the effect of state personal and corporate tax rates on firm location at the 2-digit SIC level. Using a random effects model on a data set of 14000 observations, the present study finds that a state's personal tax rate has a negative effect on firm location but that a state's corporate tax rate has no statistically-significant effect on firm location. These results suggest that the locational decision of a firm is affected more by the impact that high personal taxes will have on the manager's and/or owner's income than by the negative impact of high corporate tax rates on firm profits.