This paper analyzes the U.S. corporate income tax deduction for state and local tax payments (C-SALT). In the absence of federal deductibility, state and local taxes distort patterns of business activity, with inefficiently little performed in high-tax locations. Federal deductibility restores efficiency, while also encouraging state and local governments to increase their tax rates. The effect of C-SALT deductibility on state tax rates is so powerful that combined federal and state business tax burdens actually increase, notwithstanding the deduction. Nineteen states reduced their corporate tax rates in the aftermath of the 2017 federal tax cut, a reaction pattern consistent with efficient C-SALT deductibility.

I provide new evidence on the job mobility responses to business taxation across the income distribution by combining state-level policy variation with linked Census Bureau data on the universe of firm-worker pairs in the United States. Using an event-study framework, I directly estimate the job mobility responses between firms in the same labor market that are differentially exposed to changes in the state and federal corporate income tax. Intuitively, a reduction in business tax rates should prompt similar workers to flow from less exposed to more exposed firms and partially equalize wages across sectors. I formalize this intuition with a model that describes job mobility and wage responses of less exposed workers as a function of the labor supply and demand cross elasticities between sectors, and I use this model to relate my results to heterogeneity in worker incidence of business taxation.

Remote work is now important in shaping the location decisions of workers and firms, yet is largely ignored in the conventional wisdom about how the burden of state corporate income taxes (CIT) is distributed across workers, firms, and landowners. I develop a spatial equilibrium model with mobile workers and firms and show that, when remote workers are sufficiently substitutable with onsite workers, remote work amplifies both local labor supply and demand elasticities, which in turn, has important implications on whether workers or firms bear more of the burden of state CIT. I derive the sufficient statistics needed for the empirical estimation of the incidence of state CIT that accounts for remote work. I outline the approach to empirically estimate the incidence, and discuss the challenges in doing so. Future work aims to empirically estimate the incidence.

We investigate the effect of business tax rates on real investment, for which previous studies have produced a range of results from zero to sizable responses. We estimate an event-study model drawing on about 11,000 local business tax (LBT) rate changes in German municipalities from 1995 to 2018 combined with an administrative investment panel of manufacturing establishments. We find no significant investment responses to tax rates, neither at the extensive nor at the intensive margin. The null result holds equally across investment types (equipment, land, buildings etc.) and different firm types (firm size, legal form, productivity, firm structure etc.).