Working Papers

Chodorow-Reich, Gabriel et al. “Tax Policy and Investment in a Global Economy.” n. pag. Print.

We evaluate the 2017 Tax Cuts and Jobs Act. Combining reduced-form estimates from tax data with a global investment model, we estimate responses, identify parameters, and conduct counterfactuals. Domestic investment of firms with the mean tax change increases 20% versus a no-change baseline. Due to novel foreign incentives, foreign capital of U.S. multinationals rises substantially. These incentives also boost domestic investment, indicating complementarity between domestic and foreign capital. In the model, the long-run effect on domestic capital in general equilibrium is 7% and the tax revenue feedback from growth offsets only 2p.p. of the direct cost of 41% of pre-TCJA corporate revenue.


Agrawal, David, James Poterba, and Owen Zidar. “Policy Responses to Tax Competition: An Introduction.” Policy Responses to Tax Competition. University of Chicago Press, 2024.

This paper catalogues policies that have been deployed by jurisdictions seeking to mitigate the

effects of tax competition. There are many instruments in this policy arsenal, since the tax base

associated with a particular tax instrument may be affected by multiple policy choices, including

some such as capital controls and development incentives that are outside the traditional realm of

tax policy. This paper describes sixteen instruments that both federal and sub-federal

governments have adopted in an effort to limit tax competition. It classifies them into three

groups: those that can be pursued unilaterally, those that require bilateral or multilateral

agreement, and those that require action by an external actor such as an overarching government.

It also discusses the set of economic responses that are relevant to the evaluation of these policies,

and then summarizes new evidence on the impact of a subset of these policy instruments in the

United States and several other nations.

Chodorow-Reich, Gabriel, Owen Zidar, and Eric Zwick. “Lessons from the Biggest Business Tax Cut in U.S. History.” Journal of Economic Perspectives (2024): n. pag.

We assess the business provisions of the 2017 Tax Cuts and Jobs Act, the biggest corporate tax
cut in US history. We draw five lessons. First, corporate tax revenue fell by 40 percent due to the
lower rate and more generous expensing. Second, firms with larger declines in their effective tax
wedge increased investment relatively more. In aggregate, we suggest a loose consensus from the
literature that total tangible corporate investment increased by 11 percent. Third, the business tax
provisions increased economic growth and wages by less than advertised by the Act’s
proponents, with long-run GDP higher by less than 1% and labor income by less than $1,000 per
employee. Fourth, provisions that increase foreign investment by US-based multinationals also
boost their domestic operations. Fifth, some of the expired and expiring provisions, such as
accelerated depreciation, generate more investment per dollar of tax revenue than others.


Serrato, Juan Carlos Suarez, and Owen Zidar. “Who Benefits from State Corporate Tax Cuts? A Local Labor Market Approach With Heterogeneous Firms: Further Results.” AEA Papers and Proceedings 114 (2024): 358–363.

This paper estimates the incidence of state corporate taxes using new data and methods for estimating the effects on profits. We extend Suarez Serrato and Zidar (2016) by developing two new identification approaches that use the effects of business taxes on the labor demand of incumbent firms and local productivity to identify profit effects. We estimate these reduced-form effects using data from Census, show how reduced-form moments identify incidence and parameters, and provide incidence estimates using a variety of reduced-form approaches as well as a structural model. Across these approaches, we find that owners bear a substantial portion of incidence. Our central estimate is that firm owners bear half of the incidence, while workers and landowners bear 25-40 percent and 10-15 percent, respectively.


Finkelstein, Amy et al. “The Health Wedge and Labor Market Inequality.” Brookings Papers on Economic Activity Spring (2023): 425–475. Print.

Over half of the U.S. population receives health insurance through an employer, with employer premium contributions creating a flat “head tax” per worker, independent of their earnings. This paper develops and calibrates a stylized model of the labor market to explore how this uniquely American approach to financing health insurance contributes to labor market inequality. We consider a partial-equilibrium counterfactual in which employer-provided health insurance is instead financed by a statutory payroll tax on firms. We find that, under this counterfactual financing, in 2019 the college wage premium would have been 11 percent lower, non-college annual earnings would have been $1,700 (3 percent) higher, and non-college employment would have been nearly 500,000 higher. These calibrated labor market effects of switching from head-tax to payroll-tax financing are in the same ballpark as estimates of the impact of other leading drivers of labor market inequality, including changes in outsourcing, robot adoption, rising trade, unionization, and the real minimum wage. We also consider a separate partial-equilibrium counterfactual in which the current head-tax financing is maintained, but 2019 U.S. health care spend- ing as a share of GDP is reduced to the Canadian share; here, we estimate that the 2019 college wage premium would have been 5 percent lower and non-college annual earnings would have been 5 percent higher. These findings suggest that health care costs and the financing of health insurance warrant greater attention in both public policy and research on U.S. labor market inequality.

Serrato, Juan Carlos Suárez, and Owen Zidar. “Who Benefits from State Corporate Tax Cuts? A Local Labor Market Approach With Heterogeneous Firms: Reply.” American Economic Review 113.12 (2023): 3401–3410.

Suarez Serrato and Zidar (2016) estimate the incidence of state corporate taxes. Malgouyres, Mayer, and Mazet-Sonilhac (2022) highlight two errors—ignoring effects on firm composition and characterizing capital costs inconsistently. This reply corrects the structural model and corresponding incidence estimates. The incidence results are similar to the originally reported estimates and the confidence intervals widen for some estimates. In the corrected structural model, the firm owner incidence share estimate changes by 1.6 percentage points relative to the original version in SZ (i.e., 38.1 percent versus 36.5 percent). The worker share estimate is 35.0 percent. Landowners bear the remaining 26.9 percent.

Smith, Matt, Owen Zidar, and Eric Zwick. “Top Wealth in America: New Estimates under Heterogeneous Returns.” Quarterly Journal of Economics 138.1 (2023): 515–573. Print.

This article uses administrative tax data to estimate top wealth in the United States. We assemble new data that link people to their sources of capital income and develop new methods to estimate the degree of return heterogeneity within asset classes. Disaggregated fixed-income data reveal that rich individuals earn much more of their interest income in higher-yielding forms and have much greater exposure to credit risk. Consequently, in recent years, the interest rate on fixed income at the top is approximately 3.5 times higher than the average. We value the population of U.S. firms using firm-level characteristics and apportion this wealth using firm-owner links. We combine this new data on fixed income and pass- through business returns with refined estimates of C-corporation equity, housing, and pension wealth to deliver new capitalized wealth estimates that build upon the methods of Saez and Zucman (2016). From 1989 to 2016, the top 1%, 0.1%, and 0.01% wealth shares increased by 6.6, 4.6, and 2.9 percentage points, respectively, to 33.7%, 15.7%, and 7.1%. Overall, although we estimate a large degree of return heterogeneity, accounting for this heterogeneity does not change the fundamental story for top wealth shares and their growth—wealth inequality is high and has risen substantially over recent decades.

Zidar, Owen, and Eric Zwick. “The Next Business Tax Regime: What Comes After the TCJA?.” Building a More Resilient Economy. Washington, DC: Aspen Institute, 2023.


Sarin, Natasha et al. “Rethinking How We Score Capital Gains Tax Reform.” Tax Policy and The Economy. Vol. 36. University of Chicago Press, 2022. 1–33. Print.

We argue the revenue potential from increasing tax rates on capital gains may be substantially greater than previously understood. First, many prior studies focus primarily on short-run taxpayer responses, and so miss revenue from gains that are deferred when rates change. Second, the rise of pass-throughs and index funds has shifted the composition of capital gains in recent years, such that the share of gains that are highly elastic to the tax rate has likely declined. If some components are less elastic, then their elasticity should get more weight when scoring big changes because they will comprise more of the remaining tax base. Third, closer parity to income rates would provide a backstop to rest of tax system. Fourth, additional base-broadening reforms, like eliminating stepped-up basis, making charitable giving a realization event, reforming donor advised funds, and limiting opportunity zones to places with the highest poverty rates, will decrease the elasticity of the tax base to rate changes. Overall, we do not think the prevailing assumption of many in the scorekeeping community—that raising rates to top ordinary income levels would raise little revenue—is warranted. A crude calculation illustrates that raising capital gains rates to ordinary income levels could raise hundreds of billions more revenue over a decade than other leading estimates suggest.

Smith, Matt et al. “The Rise of Pass-Throughs and the Decline of the Labor Share.” American Economic Review: Insights 4.3 (2022): 323–340. Print.

We study the coevolution of the fall in the U.S. corporate-sector labor share and the rise of business activity in tax-preferred pass-throughs. We find that reallocating activity to the form it would have taken prior to the Tax Reform Act of 1986 accounts for one third of the decline in the corporate-sector labor share between 1978 and 2017. Our adjustments are concentrated among mid-market firms in services, magnifying the role of the manufacturing sector and superstar firms in driving the remaining decline in the labor share. Our findings highlight the importance of tax policy when measuring factor shares.

Zidar, Owen. “Discussion of Top Incomes and Capital Tax Policy.” IFS Deaton Review of Inequalities. N.p., 2022. Print.

In this commentary, I begin with six observations about top incomes and taxation. Then, I provide some commentary on the chapter ‘Top income inequality and tax policy’ by Delestre et al. (2022), and I conclude with a brief discussion on the revenue potential of top capital gains taxation.


Agersnap, Ole, and Owen Zidar. “The Tax Elasticity of Capital Gains and Revenue-Maximizing Rates.” American Economic Review: Insights 3.4 (2021): 399–416.

This paper uses a direct-projections approach to estimate the effect of capital gains taxation on realizations at the state level and then develops a framework for determining revenue-maximizing rates at the federal level. We find that the elasticity of revenues with respect to the tax rate over a 10-year period is −0.5 to −0.3, indicating that capital gains tax cuts do not pay for themselves and that a 5 percent- age point rate increase would yield $18 to $30 billion in annual federal tax revenue. Our long-run estimates yield revenue-maximizing capital gains tax rates of 38 to 47 percent.


Slattery, Cailin, and Owen Zidar. “Evaluating State and Local Business Tax Incentives.” Journal of Economic Perspectives 34.2.Spring (2020): 90–118. Print. 2 Vol.

This essay describes and evaluates state and local business tax incentives in the United States. In 2014, states spent between $5 and $216 per capita on incentives for firms in the form of firm-specific subsidies and general tax credits, which mostly target investment, job creation, and research and development. Collectively, these incentives amounted to nearly 40% of state corporate tax revenues for the typical state, but some states' incentive spending exceeded their corporate tax revenues. States with higher per capita incentives tend to have higher state corporate tax rates. Recipients of firm-specific incentives are usually large establishments in manufacturing, technology, and high-skilled service industries, and the average discretionary subsidy is $178M for 1,500 promised jobs. Firms tend to accept subsidy deals from places that are richer, larger, and more urban than the average county, and poor places provide larger incentives and spend more per job. Comparing “winning” and runner-up locations for each deal in a bigger and more recent sample than in prior work, we find that average employment within the 3-digit industry of the deal increases by roughly 1,500 jobs. While we find some evidence of direct employment gains from attracting a firm, we do not find strong evidence that firm-specific tax incentives increase broader economic growth at the state and local level. Although these incentives are often intended to attract and retain high-spillover firms, the evidence on spillovers and productivity effects of incentives appears mixed. As subsidy-giving has become more prevalent, subsidies are no longer as closely tied to firm investment. If subsidy deals do not lead to high spillovers, justifying these incentives requires substantial equity gains, which are also unclear empirically.


Fajgelbaum, Pablo et al. “State Taxes and Spatial Misallocation.” Review of Economic Studies 86.1 (2019): 333–376.

We study state taxes as a potential source of spatial misallocation in the United States. We build a spatial general equilibrium framework that incorporates salient features of the U.S. state tax system, and use changes in state tax rates between 1980 and 2010 to estimate the model parameters that determine how worker and firm location respond to changes in state taxes. We find that heterogeneity in state tax rates leads to aggregate welfare losses. In terms of consumption equivalent units, harmonizing state taxes increases worker welfare by 0.6 percent if government spending is held constant, and by 1.2 percent if government spending responds endogenously. Harmonization of state taxes within Census regions achieves most of these gains. We also use our model to study the general equilibrium effects of recently implemented and proposed tax reforms.

Kline, Pat et al. “Who Profits from Patents? Rent-Sharing at Innovative Firms.” Quarterly Journal of Economics 134.3 (2019): 1343–1404.

This paper analyzes how patent-induced shocks to labor productivity propagate into worker compensation using a new linkage of US patent applications to US business and worker tax records. We infer the causal effects of patent allowances by comparing firms whose patent applications were initially allowed to those whose patent applications were initially rejected. To identify patents that are ex-ante valuable, we extrapolate the excess stock return estimates of Kogan et al. (2017) to the full set of accepted and rejected patent applications based on predetermined firm and patent application characteristics. An initial allowance of an ex-ante valuable patent generates substantial increases in firm productivity and worker compensation. By contrast, initial allowances of lower ex-ante value patents yield no detectable effects on firm outcomes. Patent allowances lead firms to increase employment, but entry wages and workforce composition are insensitive to patent decisions. On average, workers capture roughly 30 cents of every dollar of patent-induced surplus in higher earnings. This share is roughly twice as high among workers present since the year of application. These earnings effects are concentrated among men and workers in the top half of the earnings distribution, and are paired with corresponding improvements in worker retention among these groups. We interpret these earnings responses as reflecting the capture of economic rents by senior workers, who are most costly for innovative firms to replace.

Smith, Matthew et al. “Capitalists in the Twenty-First Century.” Quarterly Journal of Economics 2019: 1675–1745. Print.

How important is human capital at the top of the U.S. income distribution? A primary source of top income is private “pass-through” business profit, which can include entrepreneurial labor income for tax reasons. This article asks whether top pass-through profit mostly reflects human capital, defined as all inalienable factors embodied in business owners, rather than financial capital. Tax data linking 11 million firms to their owners show that top pass-through profit accrues to working- age owners of closely held mid-market firms in skill-intensive industries. Pass-through profit falls by three-quarters after owner retirement or premature death. Classifying three-quarters of pass-through profit as human capital income, we find that the typical top earner derives most of her income from human capital, not financial capital. Growth in pass-through profit is explained by both rising productivity and a rising share of value added accruing to owners.

Zidar, Owen. “Tax Cuts for Whom? Heterogeneous Effects of Tax Changes on Growth and Employment.” Journal of Political Economy 127.3 (2019): 1437–1472.

This paper investigates how tax changes for different income groups affect aggregate economic activity. I construct a measure of who received (or paid for) tax changes in the postwar period using tax return data from NBER's TAXSIM. I aggregate each tax change by income group and state. Variation in the income distribution across U.S. states and federal tax changes generate variation in regional tax shocks that I exploit to test for heterogeneous effects. I find that the positive relationship between tax cuts and employment growth is largely driven by tax cuts for lower-income groups, and that the effect of tax cuts for the top 10% on employment growth is small.

Coverage: Washington PostBloombergForbesWSJMoneyweekWashington PostFinancial TimesWashington PostMarketwatchCongressional QuartelyInternational Business TimesWashtington Post, Reuters, Huffington PostInternational Business TimesThe New York Times (Economix)Capital IdeasWashington Post.


Serrato, Juan Carlos Suárez, and Owen Zidar. “The Structure of State Corporate Taxation and Its Impact on State Tax Revenues and Economic Activity.” Journal of Public Economics 167 (2018): 158–176.

This paper documents facts about the state corporate tax structure—tax rates, base rules, and credits—and investigates its consequences for state tax revenue and economic activity. We present three main findings. First, tax base rules and credits explain more of the variation in state corporate tax revenues than tax rates do. Second, although states typically do not offset tax rate changes with base and credit changes, the effects of tax rate changes on tax revenue and economic activity depend on the breadth of the base. Third, as states have narrowed their tax bases, the relationship between tax rates and tax revenues has diminished. Overall, changes in state tax bases have made the state corporate tax system more favorable for corporations and are reducing the extent to which tax rate increases raise corporate tax revenue.


Cooper, Michael et al. “Business in the United States: Who Owns It and How Much Tax Do They Pay?.” Tax Policy and the Economy. Vol. 30. Cambridge: MIT Press, 2016. 90–128.

"Pass-through” businesses like partnerships and S-corporations now generate over half of U.S. business income and account for much of the post-1980 rise in the top- 1% income share. We use administrative tax data from 2011 to identify pass-through business owners and estimate how much tax they pay. We present three findings. (1) Relative to traditional business income, pass-through business income is substantially more concentrated among high-earners. (2) Partnership ownership is opaque: 20% of the income goes to unclassifiable partners, and 15% of the income is earned in circularly owned partnerships. (3) The average federal income tax rate on U.S. pass- through business income is 19%|much lower than the average rate on traditional corporations. If pass-through activity had remained at 1980's low level, strong but straightforward assumptions imply that the 2011 average U.S. tax rate on total U.S. business income would have been 28% rather than 24%, and tax revenue would have been approximately $100 billion higher.

Links: Video of Presentation. Discussion with Jim PoterbaNBER Interview on Tax Policy and the Economy.
Coverage: NBER Digest Summary,WSJ,WSJ,Washington PostPBS, Fiscal TimesWSJ,PoliticoPoliticoBloombergNew York TimesLos Angeles TimesCapital IdeasNew York TimesNew York Times.

Serrato, Juan Carlos Suárez, and Owen Zidar. “Who Benefits from State Corporate Tax Cuts? A Local Labor Market Approach With Heterogeneous Firms.” American Economic Review 106.9 (2016): 2582–2624.

This paper estimates the incidence of state corporate taxes on the welfare of workers, landowners, and firm owners using variation in state corporate tax rates and apportionment rules. We develop a spatial equilibrium model with imperfectly mobile firms and workers. Firm owners may earn profits and be inframarginal in their location choices due to differences in location-specific productivities. We use the reduced-form effects of tax changes to identify and estimate incidence as well as the structural parameters governing these impacts. In contrast to standard open economy models, firm owners bear roughly 40 percent of the incidence, while workers and landowners bear 30-35 percent and 25-30 percent, respectively.

Coverage: NBER Digest SummaryWashington PostWSJ, Chicago Sun TimesCapital Ideas.