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 the gradual narrowing of the sales tax base that occurred during this time period was negatively associated with business activity, as remote sellers enjoyed an effective tax advantage over in-state brick-and-mortar sellers that approached 10 percent in some areas. Unwinding half of the observed base narrowing could have generated as many as 161,000 more business establishments and 3.5 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, presenting at the EEA's 2021 annual meeting.
Broadband Internet is universally recognized as a vital business input, but availability across the United States is anything but uniform. While large metropolitan areas have benefited from high-speed Internet, many non-metropolitan counties remain disconnected. In recognition of this Digital Divide, the Federal Communications Commission began issuing $1.675 billion per year in broadband installation subsidies (starting in 2015) to telecommunication providers to extend service to disconnected households and businesses. The design, administration, and rollout of this large-scale subsidized program provide an exogenous quasi-experimental setting from which broadband's causal relationship with business activity can be identified. Using a county-year panel spanning the 2011-18 period, the results from a difference-in-differences design, which allows for heterogeneous treatment effects across time, suggest that greater connectivity meaningfully increases the number of operating business establishments, the level of business employment, and sole proprietor receipts. These results are both statistically and economically significant and highlight the reality that insufficient connectivity, as a market friction, caused non-metropolitan business growth to be inefficiently low.
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.
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.