Working Paper: NBER ID: w29485
Authors: E. Mark Curtis; Daniel G. Garrett; Eric C. Ohrn; Kevin A. Roberts; Juan Carlos Suárez Serrato
Abstract: We study how tax policies that lower the cost of capital impact investment and labor demand. Difference-in-differences estimates using confidential Census Data on manufacturing establishments show that tax policies increased both investment and employment, but did not stimulate wage or productivity growth. Using a structural model, we find that the primary effect of the policy was to increase the use of all inputs by lowering costs of production and that capital and production workers are complementary inputs in modern manufacturing. Our results show that tax policies that incentivize capital investment do not lead manufacturing plants to replace workers with machines.
Keywords: capital investment; labor demand; tax policy; bonus depreciation
JEL Codes: D22; H25; H32; J23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tax policies (bonus depreciation) (H25) | capital investment (E22) |
| tax policies (bonus depreciation) (H25) | employment (J68) |
| capital investment (E22) | employment (J68) |
| tax policies (bonus depreciation) (H25) | production costs (D24) |
| production costs (D24) | employment (J68) |
| tax policies (bonus depreciation) (H25) | scale effect (R12) |
| scale effect (R12) | employment (J68) |
| tax policies (bonus depreciation) (H25) | average earnings (J31) |