The Effect of Insurance Premium Taxes on Employment

Abstract

States levy insurance premium taxes, which are essentially gross receipt taxes on premiums, with insurance companies paying the higher of the tax rate in the state in which the company is domiciled and the state in which the policy is written. Using a state-level panel data set from 1992-2004 for the property-casualty insurance industry, we explore the effect of the effective insurance premium tax rates on state employment related to the insurance industry. We estimate both a static model and a dynamic adjustment model. We find that the insurance premium tax has a negative but modest effect on employment in the insurance industry.