Multiple choice

In 2001 local tax rates in some regions of the United States fell to their lowest level in fifteen years, while the rates in other regions reached new highs. In 1985 similar conditions led to a large flight of companies, from regions with unfavorable local tax policies to regions with favorable policies. There was, however, considerably less corporate flight in 2001.

Which of the following, if true about 2001, most-plausibly accounts for the finding that there was less corporate flight in 2001?

  1. The regions with the most favorable local tax policies had many of the same types of corporations as did those with unfavorable tax policies, but this was not true in 1985.

  2. In contrast to 1985, office rental costs in the regions with the most favorable local tax policies were significantly higher than rental costs in other areas of the country.

  3. In contrast to 1985, in 2001 the areas with the most favorable local tax policies reaped the most benefit from tax incentives, although the tax codes were particularly difficult to decipher.

  4. Tax incentives offered by foreign countries were higher in 2001 than in 1985.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

This answer indicates that, overall, it may not have been financially advantageous in 2001 for a company to move to a region with a lower local tax rate.

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