Tax Cuts for Whom? Heterogenous Macroeconomic Effects of Income & Payroll Tax Changes

We study how the changing demographic composition of the US labor force has affected the response of the unemployment rate to marginal tax rate shocks. Using narratively identified tax changes as proxies for structural shocks, we establish that the responsiveness of the unemployment rates to tax changes varies significantly across age groups: the unemployment rate response of the young is nearly twice as large as that of the old. This heterogeneity is the channel through which shifts in the age composition of the labor force impact the response of the unemployment rate to tax cuts. We find that the aging of the baby boomers considerably reduces the effects of tax cuts on aggregate unemployment. (JEL E24, E62, H24, H31, J21)

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The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States: Reply

The American Economic Review ◽

10.1257/aer.20180707 ◽

2019 ◽

Vol 109 (7) ◽

pp. 2679-2691 ◽

Cited By ~ 5

Author(s):

Karel Mertens ◽

Morten O. Ravn

Keyword(s):

United States ◽

Income Tax ◽

The United States ◽

Corporate Income Tax ◽

Dynamic Effects ◽

Valid Inference ◽

Macroeconomic Effects ◽

Tax Changes ◽

Inference Methods

In this reply to a comment by Jentsch and Lunsford, we show that the evidence for economic and statistically significant macroeconomic effects of tax changes in Mertens and Ravn (2013) remains present for a range of asymptotically valid inference methods. (JEL E23, E62, H24, H25, H31, H32)

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Two-sector perspectives on the effects of payroll tax cuts and their financing

Journal of Public Economics ◽

10.1016/j.jpubeco.2008.06.004 ◽

2009 ◽

Vol 93 (1-2) ◽

pp. 176-190 ◽

Cited By ~ 5

Author(s):

Alberto Petrucci ◽

Edmund S. Phelps

Keyword(s):

Payroll Tax ◽

Tax Cuts

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Workers' Spending Response to the 2011 Payroll Tax Cuts

American Economic Journal Economic Policy ◽

10.1257/pol.20140065 ◽

2016 ◽

Vol 8 (4) ◽

pp. 124-159 ◽

Cited By ~ 7

Author(s):

Grant Graziani ◽

Wilbert van der Klaauw ◽

Basit Zafar

Keyword(s):

Payroll Tax ◽

Demographic Groups ◽

Present Bias ◽

Ex Post ◽

Ex Ante ◽

Tax Cuts

This paper investigates workers' spending response to the 2011 payroll tax cuts. Respondents were surveyed at the beginning and end of 2011, which allows the comparison of ex ante and ex post reported use of the extra income. While workers on average intended to spend 14 percent of their tax cut income, they ex post reported spending 36 percent of the funds. This pattern of higher spending ex post is shared across all demographic groups. Differences across workers in this shift to greater ex post spending are largely unexplained by differences in either present bias or unanticipated shocks, so in the end the upward revision in spending remains a puzzle. (JEL D12, D91, E21, H24, H31)

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A Boost in the Paycheck: Survey Evidence on Workers’ Response to the 2011 Payroll Tax Cuts

SSRN Electronic Journal ◽

10.2139/ssrn.2197793 ◽

2013 ◽

Cited By ~ 3

Author(s):

Grant Graziani ◽

Wilbert van der Klaauw ◽

Basit Zafar

Keyword(s):

Payroll Tax ◽

Tax Cuts

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Do Payroll Tax Cuts for Australian Firms Affect Their Use of Capital and Labor?

SSRN Electronic Journal ◽

10.2139/ssrn.3463535 ◽

2019 ◽

Author(s):

Omer Majeed ◽

Mathias Sinning

Keyword(s):

Payroll Tax ◽

Tax Cuts

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A Formula For Job Creation: Tax Law Changes For Small Businesses

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v5i2.2516 ◽

2011 ◽

Vol 5 (2) ◽

Author(s):

Patricia T. Papachristou ◽

James O. Parker

Keyword(s):

Small Businesses ◽

Job Creation ◽

Tax Law ◽

Font Size ◽

Job Growth ◽

Survival And Growth ◽

Tax Changes ◽

New Jobs ◽

Tax Cuts

The Bush tax cuts in 2001 (Economic Growth and Taxpayer Relief Reconciliation Act, (EGTRRA) and in 2003 (Job Growth and Taxpayer Relief Reconciliation Act, JGTRRA) are touted as providing an aid to the economy's recovery and job creation. The data shows that George Bush's first administration had the most anemic job expansion in decades and actually saw negative net jobs created. We advocate four tax changes for small businesses that would postpone the timing of taxes and make it easier for small businesses to survive. As small businesses provide more than two-thirds of the net new jobs created each year, insuring their sustainability will go a long way to foster small business expansion and more job growth among suppliers. Currently a third of new small businesses fail within their first two years and the failure rate exceeds 60 percent by the end of the sixth year. These tax proposals for small businesses resemble “laser surgery” for the economy instead of the “chemotherapy” of tax cuts for the whole economy. These proposals focus where two-thirds or more of new jobs are created each year and will help small businesses manage their cash flow more effectively and encourage their long term sustainability. It is time for Congress to enact measures that help provide small businesses with a source of capital rather than draining them of the vital cash that they need. Such measures would not require government handouts or loans but, rather, would for the most part, merely entail postponing the taxation of business profits so long as those profits remained in the business to help insure its survival and growth.

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