One of the most important issues facing the Commonwealth of Massachusetts today is maintaining a hospitable climate for business. If Massachusetts' taxes are deterring firms from locating and expanding within its territory, then the Commonwealth should consider ways of making its tax system less repellent. On the other hand, if its tax system is not such a deterrent, the Commonwealth should devote more attention to issues of greater concern to its employers, such as high unemployment insurance taxes, workers' compensation premiums, health care costs, and energy prices.

This article presents guidelines and analytical tools that policymakers will find useful in evaluating their state's business tax climate. Applying these tools to Massachusetts, the study concludes that Massachusetts compares favorably according to the tax burden that should concern profit-maximizing businesses the most: the extent to which taxes depress the long-run rate of return on business investment. On the whole, the Commonwealth's tax structure is neither an asset nor a liability in interstate economic competition.