The effects of state tax and regulatory policies on the location of real, financial, and
portfolio choice activity of banks are investigated. The results show that banks have
increased their efforts to avoid tax and regulatory policies since the 1980 Depository
Institutions Deregulation and Monetary Control Act. Delaware and South Dakota
have been very effective in designing policies to attract banking, but they appear to
have benefited from first-mover advantages. Overall, the effects of taxes and
regulations remain small, probably because the regulatory and technological environments have only recently become conducive to interstate tax-avoidance behavior.
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