Impacts of Corporate Tax Cuts on Firms and Workers: Evidence from Small Businesses

This paper assesses the effects of corporate tax cuts on small firms and their workers. Following a reform in Quebec, Canada, firms receiving tax cuts expand and their workers’ earnings increase compared to workers and firms without tax cuts. We estimate that overall workers bear 35 percent of the tax burden, with larger incidence falling on those with ownership in the companies they work at, through increased profits. Additionally, workers across each tercile of the within-firm earnings distribution benefit from tax cuts, possibly because fair-wage concerns matter when after-tax profits rise due to close interactions among workers in small corporate environments. (JEL D22, H22, H25, J31, L25)