A regional diffusion theory explanation for states' proposal and adoption of anti-passive investment company laws

    Authors

    A. M. Hageman;S. W. G. Robb

    Comments

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    Abbreviated Journal Title

    J. Account. Public Policy

    Keywords

    CORPORATE-INCOME TAX; AMERICAN STATES; COMPETITION; INNOVATIONS; PRESSURE; Business, Finance; Public Administration

    Abstract

    We investigate the propensity of states to propose and adopt laws prohibiting the deduction of intercompany interest or royalties in response to the passive investment company tax minimization strategy (anti-PIC statutes). Using event history analysis with panel data from 1991-2005, we investigate whether regional diffusion theory explains the proposal and adoption of anti-PIC statutes. Our results provide support for the regional diffusion theory explanation, in that both proposing and adopting states have a higher proportion of adopting states in their particular Bureau of Economic Analysis (BEA) region. We find no relationship between decreases in states' real corporate income tax revenues and their adoption of anti-PIC statutes, but do find that proposals are more common in states with slower growth in real personal income. This study contributes to existing state and local tax policy research by demonstrating that certain types of policy decisions may arise from reasons closely linked to herding behavior. (C) 2011 Elsevier Inc. All rights reserved.

    Journal Title

    Journal of Accounting and Public Policy

    Volume

    30

    Issue/Number

    6

    Publication Date

    1-1-2011

    Document Type

    Article

    Language

    English

    First Page

    551

    Last Page

    569

    WOS Identifier

    WOS:000298523600004

    ISSN

    0278-4254

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