Do Corporate Tax Cuts Increase Income Inequality

55 Pages Posted: 14 Oct 2019

See all articles by Suresh Nallareddy

Suresh Nallareddy

Duke University - Fuqua School of Business

Ethan Rouen

Harvard Business School

Juan Carlos Suárez Serrato

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

Date Written: 2019

Abstract

We study the effects of corporate taxes on income inequality. Using state corporate taxes as a setting, we provide evidence that corporate tax cuts lead to increases in income inequality. This result is robust across regression, matching, and synthetic controls approaches, and to controlling for a host of potential confounders. We use Statistics of Income data from the IRS to explore mechanisms behind this result. We find tax cuts lead to higher income for both top and bottom earners, but the gains to capital income for top earners exceed the gains to total income for bottom earners. This result suggests that, while all earners appear to benefit from a corporate tax cut, the relation between tax cuts and inequality is positive, in part, because high income individuals shift their compensation to reduce taxes.

Keywords: inequality, corporate tax cuts

JEL Classification: H250, H710, D630

Suggested Citation

Nallareddy, Suresh and Rouen, Ethan and Suárez Serrato, Juan Carlos, Do Corporate Tax Cuts Increase Income Inequality (2019). CESifo Working Paper No. 7824. Available at SSRN: https://ssrn.com/abstract=3467957

Suresh Nallareddy (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

Ethan Rouen

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States
617-495-6275 (Phone)

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

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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