Do corporate taxes affect employee welfare? Evidence from workplace safety

Abstract

We examine the impact of tax policy on worker safety that exploits spatial discontinuity in treatment and control establishments stemming from state-level corporate tax changes. The granularity of our data and econometric approach allows us to exploit within-firm, across-establishment variation in worker safety shedding light on the real effects of headquarter versus plant-level decisions. Plant-level injury rates increase with tax hikes in establishment states, but not with those in headquarter states, highlighting the importance of plant-level decisions. We explore three plausible non-mutually exclusive mechanisms to help explain these findings ─ safety investment, leverage, and labor stress channels. We find that in the presence of a tax hike, firms reduce safety-related investments, and the tax effect on injury rates is exacerbated for firms that increase leverage and for firms where employees work longer hours and seasonal workers are used. Overall, our findings suggest that tax increases lead to negative welfare outcomes for employees, with no similar benefit accruing for tax cuts.