Corporate Taxes and Employment: Evidence from United States Panel Data, 2012−2025
Lincoln Gerstner
03/09/2026
Do corporate tax cuts raise employment? By analyzing a panel of all 50 states and the District of Columbia from 2012–2025, this paper studies whether reductions in corporate income tax rates are associated with higher employment. The analysis uses state-level corporate tax reforms and estimates employment elasticities using fixed-effects regressions that account for time-invariant state factors, nationwide annual trends, and differences in local economic conditions. Across specifications, the estimated employment elasticity with respect to corporate taxation is statistically significant and negative, ranging between −0.1 and −0.3, implying that lower corporate tax rates are associated with higher employment. A representative 0.5-percentage-point tax cut is associated with roughly 3,600 to 5,500 additional jobs in the average state, depending on the existing federal tax regime. A distributed lag model shows no evidence of pre-trends and shows that employment responses occur gradually over the two years following the tax reform. While these results are more modest than those reported in previous studies, they provide evidence that corporate tax cuts are associated with economically meaningful increases in employment.