Tax Cuts For Whom? Heterogeneous Effects of Income Tax Changes on Growth and Employment
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.
You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.
Document Object Identifier (DOI): 10.3386/w21035