Do Large Corporate Tax Cuts Boost Wages? Evidence from Ohio

Abstract

Abstract This paper evaluates a natural experiment which occurred in Ohio in 2005 when the state amended the tax system. The change sets up a dramatic corporate tax cut of 8.3 percentage points (p.p.) over the period 2006–2010 corresponding to a 96.9% reduction in the tax. Policymakers also reduced the personal income tax over the same period by 0.95 percentage point (p.p.). I investigate the incidence of the reform on wages in general and corporate wages in the short-run. To do so, I use a synthetic control method along with an event study design applied to individual records of the Current Population Survey (CPS). The results in this paper suggest that the corporate tax cut may have resulted in a one-time payment in corporate wages at the onset of the reform.