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Can lower tax rates be bought? Business rent-seeking and tax competition among U.S. States

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The standard model of strategic tax competition assumes that government policymakers are perfectly benevolent. We depart from this assumption by allowing policymakers to be influenced by the rent-seeking behavior of businesses. Campaign contributions may affect tax competition and enhance or retard the mobility of capital across jurisdictions. Based on a panel of 48 U.S. states and unique data on business campaign contributions, we find that contributions have a significant direct effect on tax policy, the economic value of a $1 business campaign contribution is nearly $4, the slope of the tax reaction function is negative, and the empirical results are sensitive to state effects.

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IEB (Institut d’Economia de Barcelona) – Working Papers

# metadata.dc.title[].value
Can lower tax rates be bought? Business rent-seeking and tax competition among U.S. States