This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. Journals
  3. American Economic Review
  4. September 2016
  5. Who Benefits from State Corporate Tax Cuts? A Local Labor Markets Approach with Heterogeneous Firms

Who Benefits from State Corporate Tax Cuts? A Local Labor Markets Approach with Heterogeneous Firms

Download Full Text PDF

Abstract

This 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.

Citation

Suárez 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

Additional Materials

JEL Classification

  • 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