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.
I am grateful to Alan Auerbach, Dominick Bartelme, Alex Bartik, Marianne Bertrand, David Card, Gabe Chodorow-Reich, Austan Goolsbee, Ben Keys, Pat Kline, Attila Lindner, Zachary Liscow, Neale Mahoney, Atif Mian, John Mondragon, Enrico Moretti, Matt Notowidigdo, Christina Romer, David Romer, Jesse Rothstein, Emmanuel Saez, Jim Sallee, Andrew Samwick, Amir Sufi, Laura Tyson, Johannes Wieland, Dan Wilson, Danny Yagan, and Eric Zwick for helpful comments and Dan Feenberg for generous help with TAXSIM. I am especially thankful to Amir Sufi as well as Marianne Bertrand and Adair Morse for generously sharing data with me. This project grew out of an undergraduate research project that I worked on with Daniel Cohen, and I am grateful to him and Jim Feyrer for input on the paper at its inception. Stephanie Kestelman, Stephen Lamb, Francesco Ruggieri, Karthik Srinivasan, and John Wieselthier provided excellent research assistance. This work is supported by the Kathryn and Grant Swick Faculty Research Fund at the University of Chicago Booth School of Business. The latest version of this paper can always be found at http://faculty.chicagobooth.edu/owen.zidar/. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
Owen Zidar, 2019. "Tax Cuts for Whom? Heterogeneous Effects of Income Tax Changes on Growth and Employment," Journal of Political Economy, vol 127(3), pages 1437-1472.