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Economic Stimulus at the Expense of Routine-Task Jobs

46 Pages Posted: 20 Nov 2017  

Selale Tuzel

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Miao Ben Zhang

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Date Written: November 15, 2017

Abstract

Do investment tax incentives improve job prospects for all workers? Using two massive establishment-level datasets on occupational employment and computer investment, we study the causal effect of a major job-creating tax incentive for investment on labor outcomes. Specifically, Section 179 of Internal Revenue Code allows firms to deduct limited amount of qualifying equipment investments instantly rather than following the standard depreciation schedule, hence lowering the effective price of equipment investment for eligible businesses but not for ineligible ones. By exploring the variation in states' Section 179 deduction limits for state taxes, we find that (1) eligible firms purchase more computers and hire more nonroutine-task labor shortly after states increase the deduction limits; (2) however, these firms significantly reduce their routine-task employment starting from one year after the limit increases; (3) due to these opposite effects on two distinct labor groups, the effect on total employment is insignificant; (4) none of the above effects are detected among ineligible firms. Our results highlight the importance of heterogeneous worker skills for policy outcomes.

Keywords: Investment Tax Incentives, Labor-Technology Substitution, Section 179

Suggested Citation

Tuzel, Selale and Zhang, Miao Ben, Economic Stimulus at the Expense of Routine-Task Jobs (November 15, 2017). Available at SSRN: https://ssrn.com/abstract=3072733

Selale Tuzel

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

Miao Ben Zhang (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://www.MiaoBenZhang.com/

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