Working Paper: NBER ID: w25546
Authors: Daniel G. Garrett; Eric C. Ohrn; Juan Carlos Suarez Serrato
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.
Keywords: Tax Policy; Labor Market; Bonus Depreciation; Employment; Earnings
JEL Codes: E62; H25; H32; J23; J38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Bonus depreciation exposure (D25) | Employment (J68) |
| Bonus depreciation exposure (D25) | Total earnings (J31) |
| Bonus depreciation exposure (D25) | Capital stock (E22) |
| Relative cost of capital (G31) | Capital-labor ratio (J24) |
| Capital stock (E22) | Employment (J68) |