Tax Cuts by Occupation: Entrepreneurs vs. Workers

Myeongju Kim and Eunseong Ma
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Myeongju Kim: Yonsei University
Eunseong Ma: Yonsei University

No 2026rwp-291, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: This paper studies how the macroeconomic effects of tax cuts depend on occupational targeting—toward entrepreneurs versus wageworkers. Using a new state-level panel of occupation specific federal tax shocks for the United States from 1981 to 2017, we find that entrepreneur targeted tax cuts generate substantially larger increases in output, consumption, and employment than revenue-equivalent worker-targeted cuts. These effects coincide with increases in both entrepreneurship and wage employment, pointing to business formation and firm expansion as key transmission channels. An incomplete-markets model with occupational choice attributes these findings to earnings-based borrowing constraints and demand-driven amplification that jointly produce large entrepreneur multipliers.

Keywords: Tax policy; Entrepreneurship; Earnings-based constraints; Occupational choice (search for similar items in EconPapers)
JEL-codes: E62 H25 J23 (search for similar items in EconPapers)
Pages: 44pages
Date: 2026-05
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