Goolsbee has shown that one of the primary reasons for this lies in the prices of the investment goods. When the government subsidizes the purchase of machine tools, for instance, machine tool manufacturers raise the price of the machine tools and capture much of the tax subsidy's benefit. Effectively more than half of the cost of investment subsidies is passed to suppliers in the form of higher prices. In another paper, Goolsbee has shown that the workers in capital goods industries also benefit from the subsidies. Wages rise significantly for equipment producers when the government subsidizes the purchase of equipment and they rise most for low skill, low education, low experience workers.
Wages rise more for unionized workers, as well.
Taxes and the Choice of Legal Form of Organization. By double taxing corporate income but not non-corporate income, the current tax law gives a clear legal incentive for firms to remain unincorporated. Using both historical data for the economy as a whole and data across states for particular service sector industries, Goolsbee has shown that taxes do play a role in a firm's decision about organizational form but that the impact is quite small and that this small impact means that the inefficiency associated with corporate taxation is also small. Tax Competition Between States. Theoretical models indicate that in a nation with many jurisdictions, competition in taxes can lead to a 'race to the bottom' where governments abandon public spending and lower taxes to minimal levels in order to attract investment.