The Impact of the Manufacturing and Agriculture Credit in Wisconsin

In 2011 Wisconsin adopted the Manufacturing and Agriculture Credit (MAC), which provides credits which largely offset the taxes faced by businesses in those sectors in the state. While manufacturing employment has grown since the MAC took effect in 2013, how much of these gains were due to the credit is under debate. To isolate the policy effect, I focus on counties on either side of the Wisconsin border. After accounting for time and group effects, I find that since 2013 manufacturing employment has grown on average 1.9 percentage points (at an annual rate) faster in Wisconsin relative to counties just across the border. Quantitatively, I find that every 1 percentage point cut in the effective manufacturing tax rate was associated with a nearly 0.9 percentage point increase in the manufacturing employment growth rate. I also find significant spill-overs to the broader economy. Non-manufacturing employment has grown on average 0.7 percentage points per year faster on the Wisconsin side of the border since 2013, with each percentage point cut in the manufacturing tax rate associated with a 0.4 percentage point increase in non-manufacturing employment growth with a one year lag. I estimate that the cumulative impact of the MAC was that by September 2016 manufacturing employment in Wisconsin border counties was 6.6% higher and total employment 2.5% higher than they would have been in the absence of the tax credit. Applying these border-county estimates to the whole state suggests that since its introduction the MAC accounted for a total gain of over 20,000 manufacturing jobs (a 4.6% increase) and over 42,000 total jobs (a 1.8% increase) in Wisconsin. *The establishment of the Center for Research on the Wisconsin Economy is pending campus approval.