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Tax Policy and Local Labor Market Behavior

Author

Listed:
  • Daniel G. Garrett
  • Eric C. Ohrn
  • Juan Carlos Suárez Serrato

Abstract

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.

Suggested Citation

  • Daniel G. Garrett & Eric C. Ohrn & Juan Carlos Suárez Serrato, 2019. "Tax Policy and Local Labor Market Behavior," NBER Working Papers 25546, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:25546
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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