What is it about?
Eliminating the tangible personal property tax is often argued to be a way to improve the competitiveness of capital-intensive industries such as manufacturing, which in turn is further argued to increase employment. By eliminating the tax, however, the price of capital relative to labor falls. Since the price of capital falls, we should observe, in the short-term at least, a decrease in employment in capital-intensive industries than what we would observe if the tax remained in place. Using Ohio as a case study, we find that manufacturing employment is indeed lower after the local tangible personal property tax was eliminated.
Featured Image
Why is it important?
This study is important because it challenges a common misperception that reducing business taxes will increase employment. Businesses can invest profits in land, labor, and capital, and they'll invest in the input factor that has the highest return, which is usually not labor particularly in capital-intensive industries.
Perspectives
There are a variety of good reasons to eliminate the tangible personal property tax, most having to do with its administration. Among the reasons that are routinely offered, though, increasing the competitiveness of certain industries and increasing job opportunities seems to garner the most political support. Eliminating the tangible personal property tax may still improve the competitiveness of manufacturing in Ohio. Since capital is cheaper, businesses may purchase newer, more productive equipment, for example, which could lead to lower prices. In the long-run if demand for cheaper Ohio goods increases, we could still observe positive employment outcomes due to eliminating the tax. The assumptions required to make this conclusion, while not implausible, are nonetheless abundant. The short-run effect is a reduction in jobs, suggesting that the appropriate political arguments favoring eliminating the tax on economic development grounds should be focused on the long-run, unless future research finds that long-run employment outcomes are no different than the short-run ones.
Geoffrey Propheter
University of Colorado Denver
Read the Original
This page is a summary of: Estimating the Manufacturing Employment Impact of Eliminating the Tangible Personal Property Tax: Evidence From Ohio, Economic Development Quarterly, September 2017, SAGE Publications,
DOI: 10.1177/0891242417732123.
You can read the full text:
Contributors
The following have contributed to this page
