Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/207215 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7824
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We study the effects of corporate taxes on income inequality. Using state corporate taxes as a setting, we provide evidence that corporate tax cuts lead to increases in income inequality. This result is robust across regression, matching, and synthetic controls approaches, and to controlling for a host of potential confounders. We use Statistics of Income data from the IRS to explore mechanisms behind this result. We find tax cuts lead to higher income for both top and bottom earners, but the gains to capital income for top earners exceed the gains to total income for bottom earners. This result suggests that, while all earners appear to benefit from a corporate tax cut, the relation between tax cuts and inequality is positive, in part, because high income individuals shift their compensation to reduce taxes.
Subjects: 
inequality
corporate tax cuts
JEL: 
H25
H71
D63
Document Type: 
Working Paper
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