Impacts of Corporate Tax Cuts on Firms and Workers: Evidence from Small Businesses

Abstract

This paper assesses the effects of corporate tax cuts on small firms and their workers. Following a 2014 reform in Quebec, Canada, firms which receive tax cuts expand and become more profitable, and their workers’ earnings increase significantly. We estimate that overall workers bear about 36 percent of the tax burden, with the largest incidence falling on those with ownership in the companies they work through increased profits. Additionally, workers across the entire within-firm earnings distribution benefit from the tax cuts, possibly because fair-wage concerns matter when after-tax profits rise due to close interactions among workers in small corporate environments.

Keywords: Investment Decisions, Business Taxes and Subsidies, Fiscal Policies and Behavior of Economic Agents, Firms, Wage Level and Structure, Saving and Capital Investment

JEL Classification: G11, H25, H32, J31, O16