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To Cut or Not to Cut?
Report

To Cut or Not to Cut?

On the Impact of Corporate Taxes on Employment and Income

Alexander Ljungqvist and Michael Smolyansky
Federal Reserve Board, 2016
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8

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  • Innovative

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Cut corporate tax rates, many pundits proclaim, and watch employment increase, personal incomes surge and economic growth accelerate. Not so fast, according to economists Alexander Ljungqvist and Michael Smolyansky, who analyzed data from US counties that share a state border. Their research reveals that a correlation does exist between lower corporate rates and stronger economic activity, job creation and higher incomes during recessionary periods, but not when economies are growing. As states compete with each other to persuade companies to stay or relocate, getAbstract urges executives and policy makers to explore this compelling report.

Take-Aways

  • As policy experts mull ways to reform the tax code, it’s important to understand the effects of tax increases and cuts on economic activity.
  • A study of American states and their tax changes reveals that higher corporate taxes destroy jobs, either through reduced company hires or increased layoffs.
  • In times of economic growth, tax decreases fail to make a noticeable impact on economic activity, jobs or income.

About the Authors

Alexander Ljungqvist is a professor at the Stern School of Business at New York University. Michael Smolyansky is an economist with the Federal Reserve Board of Governors.

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