Spatial Tax Competition and Domestic Wages

39 Pages Posted: 8 Feb 2013

See all articles by Kevin A. Hassett

Kevin A. Hassett

American Enterprise Institute (AEI)

Aparna Mathur

American Enterprise Institute (AEI)

Date Written: December 1, 2010

Abstract

Using a unique, self-compiled dataset on international tax rates, we explore the link between taxes and manufacturing wages for a panel of 65 countries over 25 years. We find, controlling for other macroeconomic variables, that wages are significantly responsive to corporate taxation. Higher corporate tax rates depress wages. We also find that tax characteristics of neighboring countries, whether geographic or economic, have a significant effect on domestic wages. These results are consistent with the frequently employed assumptions in the public finance literature that capital is highly mobile, but labor is not. Under these conditions labor will bear the burden of capital taxes.

Keywords: international tax rates, international wages, manufacturing wages, international tax competition

JEL Classification: F21, H2, J3, C3

Suggested Citation

Hassett, Kevin A. and Mathur, Aparna, Spatial Tax Competition and Domestic Wages (December 1, 2010). Available at SSRN: https://ssrn.com/abstract=2212975 or http://dx.doi.org/10.2139/ssrn.2212975

Kevin A. Hassett

American Enterprise Institute (AEI) ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States
202.862.7157 (Phone)
202.862.7177 (Fax)

Aparna Mathur (Contact Author)

American Enterprise Institute (AEI) ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States
202-868-6026 (Phone)

HOME PAGE: http://www.aei.org/scholar/aparna-mathur/

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