Abstract:
This is the fi rst paper to thoroughly investigate the employment effects of corporate taxation at the industry level. Do corporate taxes affect employment rates at the industry level? If they do, then are the effects consistent across all industries? Answering these questions have proved empirically challenging. This paper uses an identifi cation strategy that exploits variation in corporate income tax rates across U.S. states and tries to understand how it impacts industry employment at the county level by focusing on contiguous counties straddling state borders over the period starting from 1990 to 2010. The results show that any change in corporate tax affect employment rate in good producing sector, but employment rate within service sector is only affected by an increase, and not by any decrease, in the corporate tax rates. The paper further presents some interesting findings at a further disaggregation by looking at some of the major economic sectors based on their share of gross domestic product.
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