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Investment Subsidies and Wages in Capital Goods Industries: To the Workers Go the Spoils?

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  • Goolsbee, Austan

Abstract

This paper looks at the impact of investment tax subsidies on the labor market for capital goods workers. Using data during a decade with considerable variation in the tax cost of capital (1979-1988), the results show that tax subsidies to investment drive up capital goods workers’ wages. A 10 percent investment tax credit, for example, raises the relative wages of such workers, on average, by 2.5 percent - 3.0 percent relative to comparable manufacturing workers in other sectors and more for certain types of workers. Rising wages make up an important part of the rising supply curve for capital goods and reflects imperfect short-run mobility of production workers across sectors.

Suggested Citation

  • Goolsbee, Austan, 2003. "Investment Subsidies and Wages in Capital Goods Industries: To the Workers Go the Spoils?," National Tax Journal, National Tax Association;National Tax Journal, vol. 56(1), pages 153-165, March.
  • Handle: RePEc:ntj:journl:v:56:y:2003:i:1:p:153-65
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    References listed on IDEAS

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    1. Lawrence F. Katz & Kevin M. Murphy, 1992. "Changes in Relative Wages, 1963–1987: Supply and Demand Factors," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 35-78.
    2. Robert S. Chirinko, 1992. "Business Fixed Investment Spending: A Critical survey of Modeling Strategies, Empirical Results, and Policy Implications," Working Papers 9213, Harris School of Public Policy Studies, University of Chicago.
    3. Gary Solon & Robert Barsky & Jonathan A. Parker, 1994. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias?," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 1-25.
    4. Austan Goolsbee, 1998. "Investment Subsidies and Wages in Capital Goods Industries: To the Workers Go the Spoils?," NBER Working Papers 6526, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Alan J. Auerbach, 2006. "Who Bears the Corporate Tax? A Review of What We Know," NBER Chapters,in: Tax Policy and the Economy, Volume 20, pages 1-40 National Bureau of Economic Research, Inc.
    2. Daiji Kawaguchi & Tetsushi Murao & Ryo Kambayashi, 2014. "Incidence of Strict Quality Standards: Protection of Consumers or Windfall for Professionals?," Journal of Law and Economics, University of Chicago Press, vol. 57(1), pages 195-224.
    3. Mariacristina Piva & Enrico Santarelli & Marco Vivarelli, 2004. "Technological and Organizational Changes as Determinants of the Skill Bias: Evidence from a Panel of Italian Firms," Papers on Entrepreneurship, Growth and Public Policy 2004-03, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.

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