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  3. American Economic Review: Insights
  4. March 2020
  5. Tax Policy and Local Labor Market Behavior

Tax Policy and Local Labor Market Behavior

  • Daniel G. Garrett
  • Eric Ohrn
  • Juan Carlos Suárez Serrato
American Economic Review: Insights
vol. 2, no. 1, March 2020
(pp. 83-100)
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Abstract

Since 2002, the US government has encouraged business investment using accelerated depreciation policies that significantly reduce investment costs. We provide the first in-depth analysis of this stimulus on employment and earnings. Our local labor markets approach exploits cross-industry variation in policy generosity interacted with county-level industry location data. This strategy identifies the partial equilibrium effects of accelerated depreciation. Places that experience larger decreases in investment costs see an increase in employment and earnings. In contrast, the policy does not have positive effects on earnings-per-worker. Overall, our findings suggest federal corporate tax policy has large effects on local labor markets.

Citation

Garrett, Daniel G., Eric Ohrn, and Juan Carlos Suárez Serrato. 2020. "Tax Policy and Local Labor Market Behavior." American Economic Review: Insights, 2 (1): 83-100. DOI: 10.1257/aeri.20190041

Additional Materials

JEL Classification

  • D25 Intertemporal Firm Choice: Investment, Capacity, and Financing
  • 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
  • J31 Wage Level and Structure; Wage Differentials
  • R23 Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics