Tax Policy and Local Labor Market Behavior

61 Pages Posted: 12 Feb 2019 Last revised: 21 Apr 2021

See all articles by Daniel Garrett

Daniel Garrett

Duke University

Eric Ohrn

Grinnell College - Department of Economics

Juan Carlos Suárez Serrato

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

Date Written: February 2019

Abstract

Since 2002, the US government has encouraged business investment using accelerated depreciation policies that significantly reduce investment costs. We provide the first in-depth analysis of this stimulus on employment and earnings. Our local labor markets approach exploits cross-industry differences in policy generosity interacted with county-level variation in industry concentration. Places that experience larger decreases in investment costs see a level increase in employment that implies a $53,000 cost-per-job. We find no positive effects on average earnings. In contrast, we document a persistent growth in capital. These results imply a capital-labor substitution elasticity that grows over time and can exceed unity.

Suggested Citation

Garrett, Daniel and Ohrn, Eric and Suárez Serrato, Juan Carlos, Tax Policy and Local Labor Market Behavior (February 2019). NBER Working Paper No. w25546, Available at SSRN: https://ssrn.com/abstract=3332294

Eric Ohrn

Grinnell College - Department of Economics ( email )

P.O. Box 805
Grinnell, IA 50112
United States

Juan Carlos Suárez Serrato

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

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