Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany
80 Pages Posted: 2 Mar 2016
Date Written: December 2015
This paper estimates the incidence of corporate taxes on wages using a 20-year panel of German municipalities. Administrative linked employer-employee data allows estimating heterogeneous worker and firm effects. We set up a general theoretical framework showing that corporate taxes can have a negative effect on wages in various labor market models. Using an event study design, we test the predictions of the theory. Our results indicate that workers bear about 40% of the total tax burden. Empirically, we confirm the importance of both labor market institutions and profit shifting possibilities for the incidence of corporate taxes on wages.
Keywords: business tax, wage incidence, administrative data, local taxation
JEL Classification: H2, H7, J3
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