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.
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Document Object Identifier (DOI): 10.3386/w25546
Published: 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