Estimating the Manufacturing Employment Impact of Eliminating the Tangible Personal Property Tax: Evidence From Ohio

Proponents of eliminating the tangible personal property tax often argue that doing so will boost employment in capital-intensive industries, presumably because businesses will invest some portion of the marginal tax savings in labor. Theory strongly suggests this reasoning may be flawed: reducing the tax on capital reduces its cost and therefore incents a substitution away from labor. This study is the first effort to estimate the employment impact of exempting tangible personal property from the property tax in the manufacturing sector in Ohio. Using the synthetic control method, we find that manufacturing employment in Ohio is lower than what it would have been had the tax not been eliminated. From our preferred model, the estimated effect is 19,300 fewer jobs per year on average, but we consider other models that produce estimates between 13,400 and 28,400 fewer jobs per year, on average.