The Marginal Propensity to Hire

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ID: 331721
2026
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Abstract
Abstract When financial constraints bind, firms adjust employment in response to cash flow shocks. A 2010 revaluation of business rates, a UK tax levied on business-occupied properties, implied that similar firms, occupying similar properties in narrow geographical locations, experienced different tax changes. I find that, on average, for every ￡1 of additional cash flow triggered by the tax change, 39 pence were spent on employment, with small and leveraged firms responding the most. I use these findings to discipline a general equilibrium model with firm heterogeneity and financial frictions and quantitatively determine the aggregate effects of a fiscal transfer to firms.
Reference Key
openalex_W7220848489 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Davide Melcangi
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Journal The Review of Economic Studies
Year 2026
DOI
10.1093/restud/rdag111
URL
https://doi.org/10.1093/restud/rdag111
Keywords Keywords not found

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