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Generating Jobs through State Employer Tax Credits: Is there a Better Way? (Revised)

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  • Heidi Garrett-Peltier
  • Jeffrey Thompson

Abstract

Revised April 13, 2010The Governors of Massachusetts, Connecticut, Rhode Island and several other states have recently proposed employer tax credits as measures to fight high unemployment in their states. Such policies are also being considered at the federal level. In the Working Paper, Jeff Thompson and Heidi Garrett-Peltier present evidence that such policies, in fact, do little to increase aggregate demand, and instead only modestly reduce the after-tax cost of labor in an economy with high unemployment, falling wages, and weak demand They suggest a more effective approach to creating jobs in the states: increasing spending in labor-intensive sectors and programs that are matched by federal funds, such as Medicaid. These expenditures would be particularly effective if they were financed through temporary high-income tax increases.

Suggested Citation

  • Heidi Garrett-Peltier & Jeffrey Thompson, 2010. "Generating Jobs through State Employer Tax Credits: Is there a Better Way? (Revised)," Working Papers wp219_revised, Political Economy Research Institute, University of Massachusetts at Amherst.
  • Handle: RePEc:uma:periwp:wp219_revised
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    File URL: https://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_201-250/WP219_revised.pdf
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    More about this item

    Keywords

    State and Local Taxation; Subsidies; and Revenue; state and Local Budget and Expenditures; State and Local Government; Health; Education; and Welfare; Business Taxes and Subsidies; Labor Demand; Wages; Compensation; and Labor Costs;

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • 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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