Business Taxation and Wages – Evidence from Individual Panel Data

46 Pages Posted: 4 Aug 2012

See all articles by Thomas K. Bauer

Thomas K. Bauer

Rhine-Westphalia Institute for Economic Research (RWI-Essen); University of Bochum - Faculty of Economics; IZA Institute of Labor Economics

Tanja Kasten

Rhine-Westphalia Institute for Economic Research (RWI-Essen)

Lars H.R. Siemers

University of Siegen

Multiple version iconThere are 2 versions of this paper

Date Written: July 2, 2012

Abstract

Empirical evidence on the degree of business-tax shifting to employees via the wage level is highly controversial and rare. It remains open to which extent the tax burden is shifted, whether there are differences for tax increases and decreases, or whether there exists some treatment heterogeneity, that drive the respective results. Using a large administrative panel data set, we exploit the regional variation of the German business income taxation to address these issues. Our results suggest an elasticity of wages with respect to business taxes that ranges between –0.28 to –0.46, once we control for invariant unobserved regional and individual characteristics. Workers with low bargaining power, e.g., low-skilled, are affected most from business tax shifting, indicating that business-tax incidence involves distributional effects. Finally, we find evidence for an asymmetric tax incidence.

Keywords: Tax incidence, profit taxation, wages, asymmetric effects

JEL Classification: H22, H25, J31, J38

Suggested Citation

Bauer, Thomas K. and Kasten, Tanja and Siemers, Lars H.R., Business Taxation and Wages – Evidence from Individual Panel Data (July 2, 2012). Ruhr Economic Paper No. 351, Available at SSRN: https://ssrn.com/abstract=2122520 or http://dx.doi.org/10.2139/ssrn.2122520

Thomas K. Bauer

Rhine-Westphalia Institute for Economic Research (RWI-Essen) ( email )

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IZA Institute of Labor Economics ( email )

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Tanja Kasten

Rhine-Westphalia Institute for Economic Research (RWI-Essen) ( email )

Branch Office Berlin
Hessische Strasse 10
Berlin, 10115
Germany

Lars H.R. Siemers (Contact Author)

University of Siegen ( email )

Department of Economics
Hoelderlinstr. 3
Siegen, 57068
Germany

HOME PAGE: http://sites.google.com/site/lhsiemers/

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