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

NBER Working Paper No. 20289

Issued in July 2014, Revised in August 2016

NBER Program(s):Labor Studies, Public Economics, Productivity, Innovation, and Entrepreneurship



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% of the incidence, while workers and landowners bear 30-35% and 25-30%, respectively.

A non-technical summary of this paper is available in the December 2014 NBER Digest. You can sign up to receive the NBER Digest by email.



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Document Object Identifier (DOI): 10.3386/w20289

Published: Juan Carlos Suárez Serrato & Owen Zidar, 2016. "Who Benefits from State Corporate Tax Cuts? A Local Labor Markets Approach with Heterogeneous Firms," American Economic Review, vol 106(9), pages 2582-2624. citation courtesy of

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