Tax cuts for whom? Heterogeneous effects of income tax changes on growth and employment

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Abstract

This paper investigates how tax changes for different income groups affect aggregate economic activity. I construct a measure of who received (or paid for) tax changes in the postwar period using tax return data from NBER’s TAXSIM. Variation in the income distribution across US states and federal tax changes generate variation in regional tax shocks that I exploit to test for heterogeneous effects. I find that the positive relationship between tax cuts and employment growth is largely driven by tax cuts for lower-income groups and that the effect of tax cuts for the top 10 percent on employment growth is small.

Original languageEnglish (US)
Pages (from-to)1437-1472
Number of pages36
JournalJournal of Political Economy
Volume127
Issue number3
DOIs
StatePublished - Jun 1 2019

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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