I examine the consequences of the implementation of the 45B Credit, an employer payroll tax subsidy (administered as an income tax credit) intended to encourage honest wage reporting for tipped employees. I find evidence suggesting that wage reporting for tipped employees increased following the implementation of the 45B Credit. I also find evidence suggesting that this credit influenced investment and economic performance. Specifically, I find that 45B Credit firms increased investment and experienced greater profitability and growth compared to non-45B Credit restaurant firms. Overall, these findings suggest that the implementation of the 45B Credit had important intended and unintended consequences. This study provides insights into the relation between firms, industries, and tax subsidies, which should be useful to lawmakers when reviewing the net benefits of this tax subsidy and other tax subsidies in the future.

Data Availability: Data used from publicly available sources.

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