Skip to main content
    • Aa
    • Aa

Conditional tax competition in American states

  • Vincent Arel-Bundock (a1) and Srinivas Parinandi (a2)

Cross-border commercial activity raises issues in federations where multiple jurisdictions can claim the right to tax the same income. In the United States, this coordination problem is resolved by splitting the tax base according to the geographic distribution of firms’ sales, capital and labour. The weight of each factor is determined on a state-by-state basis, which opens room for competitive legislative behaviour. In this complex issue area, however, policymakers must invest lot of resources to monitor competitors, evaluate policy alternatives and shepherd tax reform through the legislative process. This implies that highly professional legislatures should be more responsive to the policies of nearby states. We consider data on most American states over the period from 1986 to 2013 and find strong evidence of conditional spatial dependence. Our findings suggest that policy diffusion may often be moderated by institutional and political factors.

Linked references
Hide All

This list contains references from the content that can be linked to their source. For a full set of references and notes please see the PDF or HTML where available.

B. N. Anand and R. Sensing (2000) The Weighting Game: Formula Apportionment as an Instrument of Public Policy. National Tax Journal 53(2): 183199.

N. Beck , K. S. Gleditsch and K. Beardsley (2006) Space is More Than Geography: Using Spatial Econometrics in the Study of Political Economy. International Studies Quarterly 50(1): 2744.

S. F. Berry and W. D Berry . (1990) State Lottery Adoptions as Policy Innovations: An Event History Analysis. American Political Science Review 84(2): 395415.

W. D. Berry and B. Baybeck (2005) Using Geographic Information Systems to Study Interstate Competition. American Political Science Review 99(4): 505519.

G. Boushey (2010) Policy Diffusion Dynamics in America. New York, NY: Cambridge University Press.

L. E. Carter and J. T. LaPlant (1997) Diffusion of Health Care Policy Innovation in the United States. State & Local Government Review 29(1): 1726.

A. C. Case , H. S. Rosen and J. R. Hines (1993) Budget Spillovers and Fiscal Policy Interdependence: Evidence From the States. Journal of Public Economics 52(3): 285307.

Kimberly A. Clausing (2016) The U.S. state experience under formulary apportionment: are there lessons for international reform? National Tax Journal 69(2): 353.

B. A. Desmarais , J. J. Harden and F. J. Boehmke (2015) Persistent Policy Pathways: Inferring Diffusion Networks in the American States. American Political Science Review 109(2): 392406.

P. Dietsch (2015) Catching Capital: The Ethics of Tax Competition. New York, NY: Oxford University Press.

R. J. Franzese and J. C. Hays (2007) Spatial Econometric Models of Cross-Sectional Interdependence in Political Science Panel and Time-Series-Cross-Section Data. Political Analysis 15(2): 140164.

R. Gordon and J. D. Wilson (1986) An Examination of Multijurisdictional Corporate Income Taxation Under Formula Apportionment. Econometrica: Journal of the Econometric Society 54(6): 13571373.

R. L Hall and A. V. Deardorff (2006) Lobbying as Legislative Subsidy. American Political Science Review 100(1): 6984.

J. R. Hines Jr., (2010) Income Misattribution Under Formula Apportionment. European Economic Review 54(1): 108120.

K. J. Klassen and D. A. Shackelford (1998) State and Provincial Corporate Tax Planning: Income Shifting and Sales Apportionment Factor Management. Journal of Accounting and Economics 25(3): 385406.

T. Kousser and J. H. Phillips (2012) The Power of American Governors: Winning on Budgets and Losing on Policy. New York, NY: Cambridge University Press. Kousser, Thad. Term Limits and Legislative Professionalism. Cambridge University Press, 2005. New York, NY.

K. Krchniva (2014) Comparison of European, Canadian and U.S. Formula Apportionment on Real Data. Procedia Economics and Finance 12: 309318.

P. Krugman (1991) Increasing Returns and Economic Geography. The Journal of Political Economy 99(3): 483499.

T. C. Omer and M. K. Shelley (2004) Competitive, Political, and Economic Factors Influencing State Tax Policy Changes. Journal of the American Taxation Association 26(s-1): 103126.

S. M. Pinto (2007) Corporate Profit Tax, Capital Mobility, and Formula Apportionment. Journal of Urban Economics 62(1): 76102.

N. Riedel and M. Runkel (2007) Company Tax Reform With a Water’s Edge. Journal of Public Economics 91(7): 15331554.

M. C. Rom , P. E. Peterson and K. F. Scheve (1998) Interstate Competition and Welfare Policy. Publius: The Journal of Federalism 28(3): 1737.

C. Shipan and C. Volden (2006) Bottom-Up Federalism: The Diffusion of Antismoking Policies From U.S. Cities to States. American Journal of Political Science 50(4): 825843.

C. Shipan and C. Volden (2008) The Mechanisms of Policy Diffusion. American Journal of Political Science 52(4): 840857.

C. Shipan and C. Volden (2014) When the Smoke Clears: Expertise, Learning and Policy Diffusion. Journal of Public Policy 34(3): 357387.

P. Squire (2007) Measuring State Legislative Professionalism: The Squire Index Revisited. State Politics & Policy Quarterly 7(2): 211227.

C. Volden (2002) The Politics of Competitive Federalism: A Race to the Bottom in Welfare Benefits? American Journal of Political Science 46(2): 352363.

C. Volden (2006) States as Policy Laboratories: Emulating Success in the Children’s Health Insurance Program. American Journal of Political Science 50(2): 294312.

D. Wellisch (2004) Taxation Under Formula Apportionment-Tax Competition, Tax Incidence, and the Choice of Apportionment Factors. FinanzArchiv/Public Finance Analysis 60(1): 2441.

G. Zucman (2015) The Hidden Wealth of Nations: The Scourge of Tax Havens. Chicago: University of Chicago Press.

Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Public Policy
  • ISSN: 0143-814X
  • EISSN: 1469-7815
  • URL: /core/journals/journal-of-public-policy
Please enter your name
Please enter a valid email address
Who would you like to send this to? *


Type Description Title
Supplementary Materials

Arel-Bundock and Parinandi supplementary material
Tables A1-A5

 PDF (25 KB)
25 KB


Full text views

Total number of HTML views: 5
Total number of PDF views: 11 *
Loading metrics...

Abstract views

Total abstract views: 128 *
Loading metrics...

* Views captured on Cambridge Core between 3rd July 2017 - 22nd September 2017. This data will be updated every 24 hours.