To Cut or Not to Cut? On the Impact of Corporate Taxes on Employment and Income

By Alexander P. Ljungqvist, Michael Smolyansky. 2016

124 citations recorded by the source corpus.

Do corporate tax increases destroy jobs? And do corporate tax cuts boost employment? Answering these questions has proved empirically challenging. We propose an identification strategy that exploits variation in corporate income tax rates across U.S. states. Comparing contiguous counties straddling state borders over the period 1970 to 2010, we find that increases in corporate tax rates lead to significant reductions in employment and income. We find little evidence that corporate tax cuts boost economic activity, unless implemented during recessions when they lead to significant increases in employment and income. Our spatial-discontinuity approach permits a causal interpretation of these findings by both establishing a plausible counterfactual and overcoming biases resulting from the fact that tax changes are often prompted by changes in economic conditions.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/33aaacdf783edf3c641e09f2ce5e7fb58e0b0979

Citations in the corpus

• Sharing Risk with the Government: How Taxes Affect Corporate Risk Taking (2017, unknown): “…hypothesis of a random walk.27 Specifically, in separate augmented Dickey-Fuller tests on each state’s time series of tax rates from 1969 to 2013, Ljungqvist and Smolyansky (2016) fail to reject the presence of a unit root in each state and DC, suggesting corporate tax rates follow a random…”