FISCAL POLICY IMPLICATIONS ON SMALL BUSINESS DECISIONS: An Application to the Kansas Income Tax Initiative

Abstract

This paper attempts to identify the relationship between changes in marginal tax rates and Kansas small business owner decisions to invest in capital goods or hire workers due to Kansas House Bill 2117. This paper isolates the effects of the elimination of non-wage business income to business growth decisions. I found that elimination of tax rates for small businesses in 2013 increased the likelihood to hire workers, and invest in capital goods. These 2013 effects were also uniquely different than changes in hiring and investment in non-tax years. I found that a 6.7% reduction in marginal tax rates gave a 1% increase in the likelihood to hire, and a 25% increase in the likelihood to invest.