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  5. Corporate Tax Cuts, Firm Growth, and Workers’ Earnings

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Corporate Tax Cuts, Firm Growth, and Workers’ Earnings

  • Patrick J. Kennedy
  • Christine L. Dobridge
  • Paul Landefeld
  • Jacob Mortenson
American Economic Review (Forthcoming)

Abstract

We study the effects of the largest corporate income tax cut in U.S. history on firms and workers. To identify causal effects, we use employer-employee matched tax records and event studies comparing similarly sized firms in the same industry that faced divergent tax changes due to their pre-existing legal status. Tax cuts cause increases in firms’ investment, sales, profits, employment, and payrolls, with earnings gains concentrated among highly paid workers. In the short-run, 87% of private income gains flow to the top 10% of the income distribution.

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