Economic Integration, Corporate Tax Incidence and Fiscal Compensation

34 Pages Posted: 13 Dec 2015

See all articles by Nelly Exbrayat

Nelly Exbrayat

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE)

Benny Geys

BI Norwegian Business School; Vrije Universiteit Brussel (VUB) - Applied Economics Department

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Date Written: December 11, 2015

Abstract

Higher corporate taxes are often argued to depress wages (a tax incidence effect), while higher wages may require compensation via lower corporate tax rates (a fiscal compensation effect). Yet, existing empirical evidence ignores that i) both effects are likely to occur simultaneously (necessitating a joint estimation approach), and ii) capital mobility might play a critical moderating role for the strength of both effects. Using a panel dataset comprising 24 OECD countries over the period 1982-2007, we address both these deficiencies. This clearly illustrates the simultaneous existence of tax incidence and fiscal compensation effects. Moreover, capital mobility (and the ensuing relative bargaining power of economic agents) has a significant influence on both the prevalence and strength of these effects.

Keywords: Tax Incidence, Fiscal Compensation, Corporate taxation, Wage bargaining, Capital mobility

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

Suggested Citation

Exbrayat, Nelly and Geys, Benny, Economic Integration, Corporate Tax Incidence and Fiscal Compensation (December 11, 2015). Available at SSRN: https://ssrn.com/abstract=2702401 or http://dx.doi.org/10.2139/ssrn.2702401

Nelly Exbrayat (Contact Author)

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE) ( email )

93, chemin des Mouilles
Ecully, 69130
France

Benny Geys

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Vrije Universiteit Brussel (VUB) - Applied Economics Department ( email )

Pleinlaan 2
1040 Etterbeek
Brussel, CA 1040
Belgium

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