Tax Policy and Local Labor Market Behavior

NBER Working Paper No. 25546

Issued in February 2019

NBER Program(s):Economic Fluctuations and Growth, Labor Studies, Public Economics



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 differences in policy generosity interacted with county-level variation in industry concentration. Places that experience larger decreases in investment costs see a level increase in employment that implies a $53,000 cost-per-job. We find no positive effects on average earnings. In contrast, we document a persistent growth in capital. These results imply a capital-labor substitution elasticity that grows over time and can exceed unity.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w25546

Published: Daniel G. Garrett & Eric Ohrn & Juan Carlos Suárez Serrato, 2020. "Tax Policy and Local Labor Market Behavior," American Economic Review: Insights, vol 2(1), pages 83-100. citation courtesy of