Sharing the Burden: Empirical Evidence on Corporate Tax Incidence

Abstract

This study investigates the direct incidence of the corporate income tax (CIT) through wage bargaining, using an industry-region level panel data set on all corporations in Germany over the period 1998–2006. For the first time we account for employment effects which result from taxinduced wage changes. Workers share in reductions of the CIT burden; yet, the net effect of wage bargaining on the corporate wage bill, after an exogenous € 1 decrease in the CIT burden, is as little as 19 to 29 cents. This is about half of the effect obtained in prior literature focusing on wages alone.

Keywords: tax incidence, wage determination, corporate income taxation, corporate tax return data

JEL Classification: H22, H25, J21, J31, H32