Local Fiscal Policy and Establishment Growth
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This applied study examines the effects of local taxes and government
spending on the employment growth of 17,172 Maine establishments
that were in operation in 1996 and 1999. Empirical results indicate
that taxes have a negative effect on an establishment’s three-year
employment growth rate, although the tax effects are quite small in
magnitude. These results are robust to the omission of establishments
located in municipalities that cause group effects in the regression analysis.
The negative tax effects are not statistically significant, however, in
regressions that correct for sample selection bias related to establishment
closures. In general, the empirical findings do not reveal a significant relationship
between establishment growth and several types of local government
spending.