Who Benefits from State Corporate Tax Cuts? A Local Labor Markets Approach with Heterogeneous Firms
AbstractThis paper estimates the incidence of state corporate taxes on the welfare of workers, landowners, and firm owners using variation in state corporate tax rates and apportionment rules. We develop a spatial equilibrium model with imperfectly mobile firms and workers. Firm owners may earn profits and be inframarginal in their location choices due to differences in location-specific productivities. We use the reduced-form effects of tax changes to identify and estimate incidence as well as the structural parameters governing these impacts. In contrast to standard open economy models, firm owners bear roughly 40 percent of the incidence, while workers and landowners bear 30-35 percent and 25-30 percent, respectively.
CitationSuárez Serrato, Juan Carlos, and Owen Zidar. 2016. "Who Benefits from State Corporate Tax Cuts? A Local Labor Markets Approach with Heterogeneous Firms." American Economic Review, 106 (9): 2582-2624. DOI: 10.1257/aer.20141702
- H22 Taxation and Subsidies: Incidence
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- H32 Fiscal Policies and Behavior of Economic Agents: Firm
- H71 State and Local Taxation, Subsidies, and Revenue
- R23 Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics