Tax Cuts for Whom? Heterogeneous Effects of Income Tax Changes on Growth and Employment

97 Pages Posted: 23 Mar 2015 Last revised: 24 Jun 2021

See all articles by Owen M. Zidar

Owen M. Zidar

University of Chicago - Booth School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: March 2015

Abstract

This paper investigates how tax changes for different income groups affect aggregate economic activity. I construct a measure of who received (or paid for) tax changes in the postwar period using tax return data from NBER's TAXSIM. I aggregate each tax change by income group and state. Variation in the income distribution across U.S. states and federal tax changes generate variation in regional tax shocks that I exploit to test for heterogeneous effects. I find that the positive relationship between tax cuts and employment growth is largely driven by tax cuts for lower-income groups, and that the effect of tax cuts for the top 10% on employment growth is small.

Suggested Citation

Zidar, Owen M., Tax Cuts for Whom? Heterogeneous Effects of Income Tax Changes on Growth and Employment (March 2015). NBER Working Paper No. w21035, Available at SSRN: https://ssrn.com/abstract=2583584

Owen M. Zidar (Contact Author)

University of Chicago - Booth School of Business ( email )

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