Description: Labor-Public Seminar

Location: 368A Heady Hall

Contact Person: John Winters

Title: Labor Market Effects of the Tax Cuts and Jobs Act: Evidence from State-Level Data 

Abstract: The Tax Cuts and Jobs Act (TCJA) of 2017 represents the most significant reform of the U.S. income tax code since the Tax Reform Act of 1986. Previous analyses of the TCJA’s economic impact often rely on projections based on data prior to the enactment of the legislation. This study leverages plausibly exogenous variations in state-level tax changes brought about by the TCJA and employs local projections with two-way fixed effects to examine its effects on the labor market. Our findings indicate that a reduction in the state-level average tax rate by one percentage point under the TCJA is associated with a 1.6 percentage point increase in job growth and a 1 percentage point rise in the labor force participation rate within two years of the policy's implementation. These results are robust, precisely estimated, and account for heterogeneous responses across states and interactive fixed effects.