Tax policy shapes everything from the price of everyday goods to the long-term health of local economies. Ben Jaros, a Ph.D. graduate in economics from the John E. Walker Department of Economics at the Wilbur O. and Ann Powers College of Business, explores three key areas of tax policy and their influence on behavior in his recent dissertation:
- How states apportion corporate income tax liability.
- The economic impact of colonial tobacco tariffs.
- The effects of local tax abatements for data centers.
How states apportion corporate income taxes
In his first chapter, Jaros examined how state governments apportion corporate income tax liabilities across state borders. Rather than taxing companies solely based on where they are headquartered or where they own property, all states with a corporate income tax historically used an apportionment formula based on a mix of sales, property, and payroll to determine a corporation’s state tax liability.
“Most people think about the tax rate,” Jaros said. “But how income is divided among states, especially as more states adopt single-sales factor formulas, has an effect on business decisions and state budgets.”
One example he shared was in South Carolina in the 1990s. At the time, South Carolina used a three-factor formula, meaning every additional employee or capital investment also increased a company’s tax liability in the state. Now, under the newer single-sales formula, companies’ tax liability is based primarily on sales within the state, not property or payroll. That shift creates incentives for firms to hire labor and expend capital in the state without facing a proportional increase in taxes.
The economic impact of colonial tobacco tariffs
His second chapter looks back at Colonial America. While most Americans are familiar with the Tea Act or the Stamp Act as inciting factors in the Revolutionary War, Jaros set out to understand the British Empire’s economic motivations for maintaining control of the colonies.
As part of an early-stage dissertation grant from the Economic History Association, Jaros traveled to the Maryland State Archives to analyze and scan thousands of documents to investigate those contributing factors. Jaros discovered that the tobacco tariff revenue from Virginia alone exceeded the administrative cost of all 13 colonies in the years leading up to the Revolutionary War.
“Tobacco tariffs were a major source of revenue for the British Empire,” he said. “At its peak, import tariff revenue from Colonial tobacco made up about 7% of the British Empire’s general fund.”
While export tariffs like those levied by the British are no longer legal under the U.S. Constitution, Jaros said the historical case study helps inform modern debates about tariff design and tax incidence. “When demand for goods like tobacco is relatively inelastic, the burden of the tax tends to fall more on consumers than producers,” he said. “That has implications for how we think about taxing imports today.”
The effects of local tax abatements for data centers
Jaros’ third chapter shifts to current local finance and economic development. He explored tax abatements offered to companies building large-scale data centers, facilities with high capital costs but low labor footprints.
“Unlike traditional manufacturing, a data center does not bring hundreds of jobs to a community,” he said. “So why do local governments offer them tax breaks?”
Jaros’ research found that tax abatements work more like contracts than subsidies. They give companies long-term certainty by letting them lock in a specific property tax rate and a fixed way of valuing their property for 20 to 30 years.
For local governments, the trade-off is less clear. Jaros’ preliminary results suggest that public expenditures in these localities goes up after a data center arrives, but whether that’s due to higher tax revenue or borrowing to accommodate infrastructure needs remains uncertain.
Now a Hoover Fellow at Stanford University, Jaros is continuing his research. “My goal is to work on questions that matter to people in government,” he said. “Whether it’s a colonial tariff or a corporate apportionment formula, the big idea that taxes shape behavior through tradeoffs is the same. In the end, we need to understand the effects of those tradeoffs if we want to design better tax policy.”
About the Economics Ph.D. Program
The goal of the Economics Ph.D. program is to educate students in the fundamentals of microeconomic theory, macroeconomic theory, econometrics and application to primary and secondary fields of study, culminating in the writing and defending of the Ph.D. dissertation. The program includes the implementation and interpretation of mathematically rigorous models, with an emphasis on applying them to a wide variety of phenomena that lend themselves to logical analysis. The goal is to provide students with the tools to prepare them for academic and non-academic positions in the private and public sectors, as well as domestic and international job markets.
