Working Paper: NBER ID: w21035
Authors: Owen M. Zidar
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.
Keywords: tax cuts; income tax changes; economic growth; employment
JEL Codes: E32; E62; H2; H20; H31; N12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tax cuts for lower-income groups (H29) | Employment growth (J23) |
| Tax cuts for higher-income groups (H29) | Employment growth (J23) |
| Tax changes (H29) | Employment outcomes (J68) |
| Tax cuts for lower-income groups (H29) | Economic activity (E29) |
| Tax cuts for higher-income groups (H29) | Economic activity (E29) |
| Tax changes for lower-income groups (H29) | Employment growth (J23) |
| Tax changes for higher-income groups (H29) | Employment growth (J23) |