Working Papers

Do Higher Income Taxes on Top Earners Trickle Down? A Local Labor Markets Approach

[Accepted at Journal of Public Economics]

Abstract: This paper measures how much higher income taxes on U.S. top 1% earners “trickle down” and reduce other workers’ wages via geographically concentrated spillovers. Using an exposure design that combines time-series variation in the federal marginal tax rate for top 1% earners with cross-sectional variation in the top 1% income share across local labor markets, I find very little evidence of local trickle-down effects. The point estimates imply zero local trickle-down effects. At conventional levels of confidence, the estimates are statistically inconsistent with a one percentage point increase in the top tax rate reducing worker wages by more than -0.08%. These results undermine claims that trickle-down effects should be an important consideration in setting top tax rates.

Presentations: Mannheim Tax Conference (2020), National Tax Association Annual Conference (2020, poster), CESifo Public Economics Area Conference – Distinguished Affiliate Award Session (2021), Ludwig Maximilian University of Munich (2021), International Institute of Public Finance Annual Congress (2021), EEA-ESEM (2021), Young Economist Symposium (2021), National Tax Association Annual Conference (2021), Otto von Guericke University of Magdeburg (2021)

Empirical Evidence on the Effect of Local Business Taxes on Business Entry

Abstract: This paper empirically studies the effect of local business taxes on business entry. The paper combines 5,111 local (municipal) business tax rate changes with administrative data on the universe of business (corporate employer establishment) entrants in Germany between 2004-2012. Using a dynamic difference-in-differences approach, the paper estimates that a one-percentage point increase in the local business tax rate reduces business entry by -4% per year over the medium term. Cumulated over a six-year period, the loss in business entry amounts to -18% of an entry cohort. The drop in entry is driven primarily by single-establishment firms with less than three employees.

[This paper is now being revised and extended jointly with Luisa Dörr, James Hines and Niklas Potrafke]

Presentations: Mannheim Tax Conference (2021), NBER Business Taxation in a Federal System (2021), National Tax Association Annual Conference (2021), CESifo Public Economics Area Conference (2022)

The Role of Firms in Transmitting Worker-Level Policies into Wages: Evidence from Payroll Taxes

Abstract: This paper theoretically and empirically studies the role of firms in transmitting worker-level policies (e.g. mandated benefits, payroll taxes) into wages. When firms have labor market power, the wage impact of worker-level policies on a given type of worker can vary across firms. Using a static wage-posting model, I theoretically characterize the aspects of firms that determine how worker-level policies impact wages. Using administrative linked employer-employee data to study a German payroll tax reform, I find that similar workers experienced differential wage changes depending on the reform's impact on their employer's labor costs, one of the firm dimensions highlighted by the model.

[This paper is now being revised and extended jointly with Ashley Craig and Emily Horton]

Presentations: Mannheim Tax Conference (2019), University of Oxford Centre for Business Taxation Doctoral Conference (2019), National Tax Association Annual Conference (2019), International Institute of Public Finance Annual Congress (2020)