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Title: On the Effectiveness of Fiscal Policy: Micro Evidence from Contiguous Border Counties

Citation Type: Miscellaneous

Publication Year: 2014

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Abstract: This paper investigates the impact of corporate taxation on employment, personal income, and the size of the business sector. Our identification strategy exploits variation in corporate income tax rates across U.S. states over the period 1970-2010 and compares economic outcomes of contiguous counties that straddle state borders. This methodology both establishes a counterfactual and eliminates omitted-variable biases resulting from the confounding influence of unobserved variation in local economic conditions. This allows us to interpret our results causally. We find that corporate tax increases reduce employment, personal incomes, and the size of the business sector, while corporate tax cuts increase personal incomes but not employment. The effects are disproportionately strong in low-income and rural areas, in areas with low levels of unionization, and in right-to-work states.

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Authors: Smolyansky, Michael; Ljungqvist, Alexander

Publisher: Stern School of Business

Data Collections: IPUMS NHGIS

Topics: Other

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