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Do Corporate Tax Cuts Increase Income Inequality?

Author

Listed:
  • Suresh Nallareddy
  • Ethan Rouen
  • Juan Carlos Suárez Serrato

Abstract

We study the effects of corporate taxes on income inequality. Using state corporate taxes as a setting, we provide evidence that corporate tax cuts lead to increases in income inequality. This result is robust across regression, matching, and synthetic controls approaches, and to controlling for a host of potential confounders. We use Statistics of Income data from the Internal Revenue Service to explore mechanisms behind this result. We find that tax cuts lead to higher income for both top and bottom earners, but the gains to capital income for top earners exceed the gains to total income for bottom earners. This result suggests that although all earners appear to benefit from a corporate tax cut, the relation between tax cuts and inequality is positive, in part, because high-income individuals shift their compensation to reduce taxes.

Suggested Citation

  • Suresh Nallareddy & Ethan Rouen & Juan Carlos Suárez Serrato, 2022. "Do Corporate Tax Cuts Increase Income Inequality?," Tax Policy and the Economy, University of Chicago Press, vol. 36(1), pages 35-91.
    • Handle: RePEc:ucp:tpolec:doi:10.1086/718950
    DOI: 10.1086/718950
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    Cited by:

    1. Spyros Niavis & George Petrakos & Kleoniki-Natalia Petrou & Yiannis Saratsis, 2025. "Assessing the Impact of Smart and Green Transition Policies on Spatial and National Income Inequalities in EU Countries," Sustainability, MDPI, vol. 17(17), pages 1-27, August.
    2. Li, Hongbin & Meng, Lingsheng, 2022. "Skill biased tax policy change: Labor market effects of China’s VAT reform," Labour Economics, Elsevier, vol. 78(C).
    3. Cloyne, James & Kurt, Ezgi & Surico, Paolo, 2025. "Who gains from corporate tax cuts?," Journal of Monetary Economics, Elsevier, vol. 149(C).
    4. Uliczka, Niklas, 2023. "When the Celtic Tiger relaxed its corporate tax bite: An analysis of effects on top and upper middle income shares in Ireland," Economics Letters, Elsevier, vol. 222(C).
    5. Delis, Manthos D. & Galariotis, Emilios & Iosifidi, Maria & Ongena, Steven, 2025. "Corporate taxes and entrepreneurs' income: A credit channel," Journal of Corporate Finance, Elsevier, vol. 93(C).
    6. Tetsugen HARUYAMA, 2021. "A Schumpeterian Exploration of Gini and Top/Bottom Income Shares," Discussion Papers 2125, Graduate School of Economics, Kobe University.
    7. Marina Beljić & Olgica Glavaški, 2025. "Rethinking Tax Systems: How Heterogeneous Tax Mix Shapes Income Inequality in European OECD Economies," JRFM, MDPI, vol. 18(5), pages 1-19, May.
    8. Hernán Rincón-Castro & Juan Pablo Ángel-Mojica, 2023. "¿Sobre quién recaería la carga de reducir el impuesto sobre la renta de las empresas?," Borradores de Economia 1260, Banco de la Republica de Colombia.
    9. Siraj G. Bawa & James M. Williamson, 2020. "Distributional Impacts of the Tax Cuts and Jobs Act Using Farm Household Microdata," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 42(4), pages 835-855, December.
    10. R. Alison Felix & James R. Hines, 2022. "Corporate taxes and union wages in the United States," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(6), pages 1450-1494, December.
    11. Julien Martin & Florian Mayneris, 2022. "Revue de littérature sur l’incidence fiscale des taxes sur les entreprises," CIRANO Project Reports 2022rp-06, CIRANO.
    12. Leonard F. S. Wang & Ji Sun, 2023. "Corporate profit tax, firm entry with unemployment, and income inequality," Bulletin of Economic Research, Wiley Blackwell, vol. 75(2), pages 380-392, April.
    13. He, Fan & Zeng, Xin & Xue, Jingwen & Xu, Jianbin, 2024. "The hidden cost of corporate tax cuts: Evidence from worker health in China," China Economic Review, Elsevier, vol. 86(C).
    14. Matthew Rochat, 2023. "The determinants of growing economic inequality within advanced democracies," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 70(4), pages 457-475, December.
    15. Gkolfinopoulou, Michalitsa & Theophilopoulou, Angeliki, 2025. "Effects of Tax Shocks on Inequality: Empirical Evidence from the United Kingdom," MPRA Paper 123457, University Library of Munich, Germany.
    16. Urooj Khan & Suresh Nallareddy & Ethan Rouen, 2020. "The Role of Taxes in the Disconnect Between Corporate Performance and Economic Growth," Management Science, INFORMS, vol. 66(11), pages 5427-5447, November.
    17. Delis, Manthos & Galariotis, Emilios & Iosifidi, Maria, 2023. "Corporate Taxes and Economic Inequality: A Credit Channel," MPRA Paper 116396, University Library of Munich, Germany.
    18. Julie L. Hotchkiss & Robert E. Moore & Fernando Rios-Avila, 2021. "Impact of the 2017 Tax Cuts and Jobs Act on Labor Supply and Welfare of Married Households," FRB Atlanta Working Paper 2021-18, Federal Reserve Bank of Atlanta.
    19. Schochet, Sholom & Benlemlih, Mohammed & Jaballah, Jamil, 2022. "Is corporate tax avoidance related to employee treatment?," Journal of Empirical Finance, Elsevier, vol. 69(C), pages 63-80.

    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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