NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Tax Cuts For Whom? Heterogeneous Effects of Income Tax Changes on Growth and Employment

Owen M. Zidar

NBER Working Paper No. 21035
Issued in March 2015, Revised in February 2017
NBER Program(s):Economic Fluctuations and Growth, Public Economics

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. I aggregate each tax change by income group and state. Variation in the income distribution across U.S. 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% on employment growth is small.

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Document Object Identifier (DOI): 10.3386/w21035

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