Tax Cuts for Whom? Heterogeneous Effects of Income Tax Changes on Growth and Employment

2018/10/30 by Owen Zidar · 149 citations
Business, Management and Accounting · Economics, Econometrics and Finance · Social Sciences · #Demographic economics #Economics #Financial Literacy, Pension, Retirement Analysis #Fiscal Policy and Economic Growth #Gender, Labor, and Family Dynamics #Gross income #Indirect tax #Labour economics #Public economics #State income tax #Tax reform #Value-added tax

paper · doi:10.1086/701424

published in Journal of Political Economy 127(3), 1437-1472 (University of Chicago Press)

openalex publication_date 2018/10/30 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/27

Abstract

This paper investigates how tax changes for different income groups affect aggregate economic activity. I construct a measure of who received (or paid for) tax changes in the postwar period using tax return data from NBER’s TAXSIM. Variation in the income distribution across US states and federal tax changes generate variation in regional tax shocks that I exploit to test for heterogeneous effects. I find that the positive relationship between tax cuts and employment growth is largely driven by tax cuts for lower-income groups and that the effect of tax cuts for the top 10 percent on employment growth is small.

Citations

• The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review
• Estimation and Inference of Impulse Responses by Local Projections
• The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks
• Salience and Taxation: Theory and Evidence

Cited by

• The economic consequences of major tax cuts for the rich
• Causal Quartets: Different Ways to Attain the Same Average Treatment Effect
• Welfare Effects of Labor Income Tax Changes on Married Couples: A Sufficient Statistics Approach
• Income Taxes, Gross Hourly Wages, and the Anatomy of Behavioral Responses: Evidence from a Danish Tax Reform
• The Macroeconomic Effects of Income and Consumption Tax Changes
• Beyond the spike at zero: Understanding nominal wage rigidity through empirical and model-based approaches
• Corporate tax cuts, merger activity, and shareholder wealth
• The Role of Risk Sharing in Attenuating Business Cycles Within Currency Unions
• Supply-side economics [wikipedia]

Related

• Estimating the Distributional Implications of the Tax Cuts and Jobs Act
• Heterogeneous Responses to the U.S. Narrative Tax Changes: Evidence from the U.S. States
• Output, Employment, and Price Effects of U.S. Narrative Tax Changes: A Factor-Augmented Vector Autoregression Approach
• The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks
• The economic consequences of major tax cuts for the rich