No. 171: The Effects of Tax Reform on Labor Demand within Tax Departments

This study examines the effect of a major tax reform on firms’ demand for internal tax department employees. Specifically, we analyze the effects of the Tax Cuts and Jobs Act (TCJA) on the number of job postings and skill profiles for tax department positions. We employ machine learning techniques to identify and classify approximately 13,500 tax-related job postings posted by 1,251 firms from 2016–2019. Using a difference-in-differences research design, we find a 32% increase in the number of tax-related job postings in the two years following TCJA enactment among U.S. treatment firms relative to U.K. control firms. LinkedIn-based employment data show that tax department size increased after the TCJA, confirming actual hiring. We also find that firms increase demand especially for tax compliance employees. Overall, our findings provide evidence that major tax reforms are associated with economically meaningful changes in the scale and composition of internal tax functions.