Interstate business tax differentials and new firm location

This paper examines the impact of state and local tax differentials on the location of industry using a panel data set of manufacturing firm start-ups. The number of firm births is modeled as a Poisson count process and the estimation technique explicitly accounts for unobserved location or state heterogeneity in the estimation. A second focus of the analysis is the development of an industry- and year-specific series of effective tax rates for each state. After controlling for state and industry effects, the estimates indicate that a high state marginal effective tax rate reduces the number of firm births for half of the industries examined.