CAREER: Business Taxation and Local Fiscal Policy

Policymakers at both the national and sub-national level must not only finance a growing public sector, but they also need to do so while fostering growth and providing a competitive environment for businesses and top earners. This research consists of two lines of research related to these fiscal policy design challenges: business taxation and local fiscal policy. The goal of the first line of research is to document facts on U.S. business income and taxation, and then to develop estimates that are needed to inform the design of the business tax system. The second line of work focuses on local fiscal policy. It investigates what state and local governments have been doing to respond to adverse labor market conditions and then builds a framework for evaluating policy tradeoffs in a setting in which states want to provide safety net programs while facing a mobile tax base. These projects can help inform policymakers and improve the design of economic policy, which can increase incomes and opportunity for millions of people. It can also encourage additional research on these key areas.

The first line of research documents facts on U.S. business income and taxation, and then characterizes and estimates parameters needed to inform the design of the business tax system. The investigator first examines the causes of rising business income, which accounts for much of the rise of top incomes since 2000. The investigator further investigates how business tax cuts impact firm performance and inequality. This project also evaluates investment policy provisions, the merits of broadening the tax base and lowering the corporate rate, and policies affecting the creation of new high-growth firms. The second line of work focuses on addressing state and local fiscal policy challenges. This research investigates what state and local governments have been doing to respond to adverse labor market conditions and then builds a framework for evaluating policy tradeoffs in a setting in which states want to provide safety net programs while facing a mobile tax base. The investigator further evaluates the equity and efficiency consequences of eliminating the state and local tax deduction, which is related to recent reforms that substantially raised tax rates on top earners in some locations.