Who Benefits from State Corporate Tax Cuts? A Local Labor Markets Approach with Heterogeneous Firms

138 Pages Posted: 24 Jul 2014 Last revised: 10 Jun 2021

See all articles by Juan Carlos Suárez Serrato

Juan Carlos Suárez Serrato

Duke University - Department of Economics; National Bureau of Economic Research (NBER)

Owen M. Zidar

University of Chicago - Booth School of Business

Date Written: July 2014

Abstract

This paper estimates the incidence of state corporate taxes on the welfare of workers, landowners, and firm owners using variation in state corporate tax rates and apportionment rules. We develop a spatial equilibrium model with imperfectly mobile firms and workers. Firm owners may earn profits and be inframarginal in their location choices due to differences in location-specific productivities. We use the reduced-form effects of tax changes to identify and estimate incidence as well as the structural parameters governing these impacts. In contrast to standard open economy models, firm owners bear roughly 40% of the incidence, while workers and landowners bear 30-35% and 25-30%, respectively.

Suggested Citation

Suárez Serrato, Juan Carlos and Zidar, Owen M., Who Benefits from State Corporate Tax Cuts? A Local Labor Markets Approach with Heterogeneous Firms (July 2014). NBER Working Paper No. w20289, Available at SSRN: https://ssrn.com/abstract=2471182

Juan Carlos Suárez Serrato (Contact Author)

Duke University - Department of Economics ( email )

Durham, NC 27708-0204
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Owen M. Zidar

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://https://sites.google.com/site/omzidar/

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