How Does Capital Investment Affect Workers? Evidence from Bonus Depreciation and Matched Employer-Employee Data

Award Year


Grant Type

Early Career Reseach Award


This project uses quasi-experimental variation in tax incentives for capital investment and recently-obtained access to confidential, matched employer-employee data from the Census Bureau to study how capital investments induced by these incentives affect firms' choices to substitute capital for labor and firms' employees. The policy we study, bonus depreciation, which allows firms to deduct investment costs from their taxes more quickly, disproportionately benefits firms that invest in longer-lived assets. By comparing workers in firms who are more affected by the policy to other workers, we will explore whether and to what extent capital investment benefits or harms workers, whether these effects are concentrated among low-income or low-skill workers, and whether incentives for capital accumulation affects inequality within firms and across skill levels.