American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Corporate Tax Cuts, Firm Growth, and Workers' Earnings
American Economic Review
(pp. 3380–3422)
Abstract
We study the effects of the largest corporate income tax cut in US 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 preexisting 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 percent of private income gains flow to the top 10 percent of the income distribution.Citation
Kennedy, Patrick J., Christine L. Dobridge, Paul Landefeld, and Jacob Mortenson. 2026. "Corporate Tax Cuts, Firm Growth, and Workers' Earnings." American Economic Review 116 (9): 3380–3422. DOI: 10.1257/aer.20240404Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- D31 Personal Income, Wealth, and Their Distributions
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- H32 Fiscal Policies and Behavior of Economic Agents: Firm
- J23 Labor Demand
- L25 Firm Performance: Size, Diversification, and Scope