State-Level Implications of Federal Tax Policies

•More than half of the U.S. states had no significant responses to the federal individual or corporate income tax cut.•Federal corporate tax cuts boost output and employment more in states with lower capital share of income.•Incorporating both corporate and non-corporate sectors in a model is necessary in explaining the above finding.•Our result suggests that factor reallocation across states and sectors plays an important role in generating the aggregate impacts of federal policy changes.