Failure to Launch: Measuring the Impact of Sales Tax Nexus Standards on Business Activity
Joint work with Donald Bruce. R&R at the Journal of Public Economics.
We present the first empirical analysis of the relationship between sales tax collection obligations, or nexus, and business activity. The recent Supreme Court decision in the Wayfair case upended the long-standing physical presence requirement for sales tax nexus and opened the door for states to enforce sales tax collection obligations on remote sellers that have sufficient economic presence in the buyer's state. In an effort to inform the ongoing policy discussion, we make use of state-level panel data to explore the extent to which changes in sales tax nexus were associated with changes in business establishment formation and employment between 1979 and 2014. Our results suggest that increasing sales tax base breadth by 1 percentage point generates 0.14 percent additional firms and establishments and 0.2 percent higher employment levels. Furthermore, increasing the share of online companies with nexus by 1 percentage point translates into 0.1 percent additional (small) firms as the sales-tax-collection obligation is dispersed among a larger share of firms. Results from a simulation show that unwinding half of the observed base narrowing could have generated as many as 90,350 firms, 113,600 establishments, and 2.9 million jobs during the time period. These results provide suggestive evidence of the future impact of sales tax base recovery that will result from more neutral nexus standards in the post-Wayfair world.
Broadband Internet and Business Activity
Presented at the SEA's 2020 annual meeting, the EEA's 2021 annual meeting, and presenting at the CEA's 2021 annual meeting.
Does the diffusion of broadband-capable networks enhance business activity and entrepreneurship? Does the narrowing of the Digital Divide spur rural economic growth? To answer these questions empirically, I examine one of the Federal Communication Commission's largest broadband deployment programs to date -- Phase II of the Connect America Fund. Exploiting plausibly exogenous variation in the deployment of wired broadband connections during the 2015-18 period, my county-level difference-in-differences results suggest that broadband availability increases the number of business establishments, employment levels, and entrepreneurial revenues. Exploring sources of heterogeneity reveals that much of the employment effect is driven by rural counties and the expansion of large business establishments. I find suggestive evidence that at least part of the expansion in business activity is attributable to the entry of new firms. Finally, a simple cost-benefit analysis reveals that the CAF II program likely generated a net benefit measuring $182 million. Taken as a collective, this paper's causal estimates show that the diffusion of broadband-capable networks into rural counties not only narrows the Digital Divide, but also generates substantial economic gains.
Work in Progress
Business Dynamism in the 21st Century: Origins of the Slowdown
In this paper, I explore Business Formation Statistics (BFS) data, which report the number of individuals and corporations applying for Employer Identification Numbers (EINs) at the state-week level. I investigate a relatively unexplored cause of declining business dynamism: the sharp and permanent drop in high-propensity business applications that occurred during the onset of the Great Recession. Unlike previous studies that have identified gradual changes in the economic landscape as leading causes of the decline in business dynamism, this paper identifies a particular point in time that generated a high-impact, structural discontinuity in business application quality.
How will Expanding Broadband Internet Access Benefit Knox County, TN?
Boyd Center for Business and Economic Research, 2021, with Lawrence Kessler, Alex Norwood, and William Fox.
This policy report examines Knoxville Utilities Board's (KUB) plan to install fiber-to-the-home (FTTH) across its 688-square-mile electrical grid. The plan, which would offer download/upload speeds of 1 gigabits-per-second (Gbps) at a monthly rate of $65, would lead to customer cost savings between $18.5 and $85.7 million. The ultra-fast upload speeds, which are 25 times faster than top competitors, would also generate time savings for subscribers. In addition, the plan would likely generate economic and social benefits to the greater Knoxville region, including greater output growth, reduced unemployment spells, and reductions in rural depopulation.
The Entrepreneurial Resurgence: Business Formation During the COVID-19 Pandemic
Boyd Center for Business and Economic Research, 2021.
This policy report examines the 2020 surge in business applications using state-level Business Formation Statistics (BFS) data. It provides policymakers, economists, and business professionals a detailed examination of where and when the pandemic surge in business applications was most prevalent. The five states that reported the most permanent and temporary business closures due to the COVID-19 Pandemic (California, Texas, Florida, New York, and Illinois) are in fact the same states that led the nation in 2020 business applications. These results tell a story of greater entrepreneurial activity where existing business landscapes have been most disrupted.
Economic Report to the Governor
Boyd Center for Business and Economic Research, 2020, with Lawrence Kessler, Donald Bruce, Celeste Carruthers, William Fox, Enda Hargaden, Vickie Cunningham, and Alex Norwood.
This is the 45th annual economic report compiled for the Governor of the state of Tennessee. It includes a detailed analysis on the Tennessee economy and both short-run (business cycle-sensitive) and long-run (trend-based) forecasts of economic indicators. This volume pays particular attention to the COVID-19 Pandemic and its impact on the state economy. Designed to disseminate the most up-to-date and pertinent economic information regarding the state economy, this report aids planners and decision-makers in both the public and private sectors.
Connect Knox: Greater Knoxville Economic Report Card
Boyd Center for Business and Economic Research, 2019, with Donald Bruce and Timothy Kuhn.
This report, which was prepared in conjunction with the Knoxville Chamber and the Knox County Metropolitan Planning Commission, serves as a report card to track the economic progress of Knox county, the nine-county Knox region (including Knox, Grainger, Jefferson, Sevier, Blount, Loudon, Roane, Anderson, and Union counties), and the state of Tennessee.