Tax Policy and Local Labor Market Behavior
Since 2002, the US government has encouraged business investment using accelerated depreciation policies that significantly reduce investment costs. We provide the first in-depth analysis of this stimulus on employment and earnings. Our local labor markets approach exploits cross-industry differences in policy generosity interacted with county-level variation in industry concentration. Places that experience larger decreases in investment costs see a level increase in employment that implies a $53,000 cost-per-job. We find no positive effects on average earnings. In contrast, we document a persistent growth in capital. These results imply a capital-labor substitution elasticity that grows over time and can exceed unity.
We are very grateful for comments and suggestions from Joe Altonji, Pat Bayer, Allan Collard-Wexler, Mark Curtis, Yuriy Gorodnichenko, Xian Jiang, Matthias Kehrig, Andrea Lanteri, Chad Syverson, Chris Timmins, Daniel Xu, Owen Zidar, and Eric Zwick, as well as for comments from seminar participants at Duke and NTA. All errors remain our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Daniel G. Garrett & Eric Ohrn & Juan Carlos Suárez Serrato, 2020. "Tax Policy and Local Labor Market Behavior," American Economic Review: Insights, vol 2(1), pages 83-100. citation courtesy of