Who benefits from state corporate tax cuts? A local labor markets approach with heterogeneous firms

Juan Carlos Suárez Serrato, Owen Zidar

Research output: Contribution to journalReview articlepeer-review

45 Scopus citations

Abstract

This paper estimates the incidence of state corporate taxes on the welfare of workers, landowners, and firm owners using variation in state corporate tax rates and apportionment rules. We develop a spatial equilibrium model with imperfectly mobile firms and workers. Firm owners may earn profits and be inframarginal in their location choices due to differences in location-specific productivities. We use the reduced-form effects of tax changes to identify and estimate incidence as well as the structural parameters governing these impacts. In contrast to standard open economy models, firm owners bear roughly 40 percent of the incidence, while workers and landowners bear 30-35 percent and 25-30 percent, respectively. (JEL H22, H25, H32, H71, R23, R51).

Original languageEnglish (US)
Pages (from-to)2582-2624
Number of pages43
JournalAmerican Economic Review
Volume106
Issue number9
DOIs
StatePublished - Sep 2016
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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