Detecting shifts of business presence subsequent to state tax modification

Date of Completion

January 1994

Keywords

Business Administration, Accounting

Degree

Ph.D.

Abstract

This dissertation investigates a state's economic environment subsequent to a state tax modification for evidence of change in business presence.^ Sponsors of economically motivated state tax policy initiatives generally adopt a tax reduction program in order to improve a state's business climate and to stimulate a state's economy. The results of previous empirical studies researching the possible linkage between tax reduction and economic stimulation is inconclusive.^ This dissertation examines the economic period subsequent to New York State's 1987 tax policy change in order to detect shifts in business presence within New York. Detecting shifts in business presence after a state tax reduction provides evidence of a nexus between tax initiatives and economic stimulation.^ Time series models were developed to incorporate the economic environment prior to the 1987 tax modification in New York. The specific monthly time series data examined were: employment in non-agriculture, the unemployment rate, and the business activity index. Quarterly income tax collection were also examined as a measure of economic prosperity.^ Three different research methods were employed to examine the four time series. The three methods were, CuSum chart of quality control, sequential application of the Student's t-test, and dummy variable multiple regression.^ The results of the analysis provide some basis for concluding that a linkage between tax reduction and economic stimulation is not as robust as legislators perceive. None of the time series examined exhibited long term improvement.^ Another implication of this dissertation is that the methods of quality control generate earlier signals as to the ineffectiveness of New York State's tax modification than either the Student's t-test or dummy variable multiple regression. ^

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