To Cut or Not to Cut? On the Impact of Corporate Taxes on Employment and Income

Alexander Ljungqvist () and Michael Smolyansky

No 20753, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Do corporate tax increases destroy jobs? And do corporate tax cuts boost employment? Answering these questions has proved empirically challenging. We propose an identification strategy that exploits variation in corporate income tax rates across U.S. states. Comparing contiguous counties straddling state borders over the period 1970 to 2010, we find that increases in corporate tax rates lead to significant reductions in employment and wage income, while corporate tax cuts only boost economic activity if implemented during recessions. Our spatial-discontinuity approach permits a causal interpretation of these findings by both establishing a plausible counterfactual and overcoming biases resulting from the fact that tax changes are often prompted by changes in economic conditions.

JEL-codes: E3 E62 H2 H25 H31 H32 H71 (search for similar items in EconPapers)
Date: 2014-12
New Economics Papers: this item is included in nep-mac
Note: EFG PE
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Citations: View citations in EconPapers (33)

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Working Paper: To Cut or Not to Cut? On the Impact of Corporate Taxes on Employment and Income (2016)
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