Year of Publication



Martin School of Public Policy and Administration

Date Available


Degree Name

Master of Public Administration

Executive Summary

Tax incentives - in particular, corporate tax credits - have been a prominent topic of discussion among government administrators, public economists, and political scholars. This capstone project will contribute to the discussion by addressing the relationship between tax credits and employment, and provide an empirical analysis to aid in determining the effect that tax credits may have on employment.

The study uses aggregate data spanning ten years, from 1999 to 2008, and representing 18 industrial sectors with 180 observations. The data are analyzed with the help of the two panel data regression models: Fixed Effects and Between Effects. The findings show that there is no statistically significant relationship between tax credits and employment, indicating that tax credits do not incentivize firms to hire. A factor that has turned out to be statistically significant due to its strong effect on employment in the two estimation models is corporate tax deductions.

The study results, however, should be viewed as preliminary due to existing limitations. Future research should continue to focus on the role that tax credits may play in regard to employment. Refinement of the data - in particular, further analysis on the individual firm level rather than the aggregate industry level - and the model presented in this capstone project, as well as specification of the type of tax credit provided, may lead to a more precise estimation of the relationship between tax credits and employment.



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