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Corporate Income Taxes and Labor: An Investigation of Empirical Evidence

13 Pages Posted: 30 Aug 2017  

Andrew Hanson

Marquette University- Department of Economics

Ike Brannon

The Cato Institute

Date Written: July 22, 2017

Abstract

With the highest top marginal corporate tax rate among OECD nations and the third-highest in the world at 35 percent, it is not surprising that policymakers have long evinced a desire to lower the U.S. federal corporate income tax rate. Reducing the corporate income tax rate has implications for a wide-range of outcomes – from federal revenues to foreign direct investment, but the effects of such a change on workers is less understood. This paper examines the empirical literature on the effect of corporate income taxes on labor, specifically on employment and worker incomes. In general, empirical work with the most robust results and controlling for factors of influence outside of corporate income taxes generally have an elasticity of employment with respect to the corporate income tax rate of between -0.2 and -0.4, with a wage/income elasticity near -0.5. In the context of recent tax reform discussions that propose a rate reduction between 30% to 57%, that would imply employment gains between 6% to 22% and wage increases between 15% to 28%.

Keywords: Corporate Income Tax, Employment, Wages, Incidence

JEL Classification: H25, H22

Suggested Citation

Hanson, Andrew and Brannon, Ike, Corporate Income Taxes and Labor: An Investigation of Empirical Evidence (July 22, 2017). Available at SSRN: https://ssrn.com/abstract=3028135

Andrew Hanson (Contact Author)

Marquette University- Department of Economics ( email )

P.O. Box 1881
Milwaukee, WI 53201-1881
United States

Ike Brannon

The Cato Institute ( email )

1000 Massachusetts Avenue N.W.
Washington, DC 20001-5403
United States

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