Corporate Tax Cuts, Firm Growth, and Workers' Earnings

Abstract

We study the effects of the largest corporate income tax cut in US history on firms and workers. To identify causal effects, we use employer-employee matched tax records and event studies comparing similarly sized firms in the same industry that faced divergent tax changes due to their preexisting legal status. Tax cuts cause increases in firms' investment, sales, profits, employment, and payrolls, with earnings gains concentrated among highly paid workers. In the short run, 87 percent of private income gains flow to the top 10 percent of the income distribution.