Labor Market Effects of the Tax Cuts and Jobs Act
Description
This replication package contains the data and Stata code used in the paper “Labor Market Effects of the Tax Cuts and Jobs Act.” The paper examines whether cross-state variation in TCJA-induced federal income tax changes affected payroll employment growth and labor force participation following the enactment of the Tax Cuts and Jobs Act (TCJA) of 2017. The main research hypothesis is that larger TCJA-induced individual income tax cuts stimulated state labor markets by increasing payroll employment and labor force participation. To test this hypothesis, the paper constructs state-level tax shock measures using Statistics of Income (SOI) tabulations of individual income tax returns combined with the NBER-TAXSIM model. The tax shock measures capture changes in federal income tax liabilities induced by the TCJA while holding pre-reform income fixed. The dataset combines: State-level SOI tax return tabulations, NBER-TAXSIM simulated tax liabilities, Bureau of Labor Statistics payroll employment data, Labor force participation measures, Additional demographic and economic controls. The empirical analysis uses panel regressions with state and year fixed effects, interactive fixed effects models, county-level specifications, and instrumental variables approaches. The primary outcome variables are cumulative long-difference measures of payroll employment and labor force participation relative to pre-TCJA levels. The data show that states experiencing larger TCJA-induced tax cuts generally experienced stronger labor market outcomes after 2017. The estimates imply that a tax cut equal to 1 percent of AGI increased payroll employment by approximately 0.8–1.5 percent and raised labor force participation by roughly 0.7–1 percentage point over the first two years following the reform. The implied short-run tax multiplier ranges from approximately 1.4 to 2.7 depending on specification. The replication files are organized to allow users to reproduce all tables and figures in the paper. The Stata do-files include data cleaning, construction of tax shock measures, merging procedures, and estimation routines. Users should set the working directory appropriately before running the replication code.
Files
Steps to reproduce
The analysis combines publicly available state-level Statistics of Income (SOI) tabulations, NBER-TAXSIM simulations, and labor market data from the Bureau of Labor Statistics. TCJA-induced tax shocks are constructed by simulating federal income tax liabilities under pre- and post-TCJA tax rules while holding pre-reform income fixed. The resulting state-level tax shock measures are merged with payroll employment and labor force participation data to estimate the labor market effects of the TCJA using panel regression methods. All data construction, cleaning, merging, and estimation procedures are implemented in Stata. Replication is straightforward: users only need to set the working directory at the top of replicate.do before running the file. The replication package reproduces all tables and figures reported in the paper.