I’m planning on submitting this paper soon after making a few minor corrections and running a couple robustness checks, so please let me know if you have any comments or suggestions on it in the next week or two. Thanks!
ABSTRACT: This paper investigates how tax changes for different income groups affect macroeconomic activity. Using historical tax return data from NBER’s TAXSIM, I construct a measure of who received (or who paid for) postwar tax changes for each income and payroll tax change that Romer & Romer (2010) classify as exogenous. I aggregate tax changes for all taxpayers in the the bottom 90% and the top 10% of income and relate these aggregates to output, employment, consumption, and investment growth. National tax changes also generate state tax shocks that provide additional within year variation that I exploit to test for heterogeneous effects. If tax cuts for high income earners generate substantial economic activity, then states with a large share of high income taxpayers should grow faster following a national tax cut for high income earners. I find that the negative relationship between tax changes and real GDP growth is largely driven by tax changes for the bottom 90%. The empirical relationship between tax cuts for the top 10% and job creation is negligible to small in magnitude and much weaker than that of equivalently sized tax cuts for the bottom 90%.