Do Consumers Pay the Corporate Tax?

50 Pages Posted: 22 Oct 2019

See all articles by Martin Jacob

Martin Jacob

WHU - Otto Beisheim School of Management

Maximilian A. Müller

ESMT Berlin

Thorben Wulff

WHU - Otto Beisheim School of Management

Date Written: October 11, 2019

Abstract

We examine whether consumers bear corporate taxes through higher prices. Using data on the gas prices of German gas stations and local variation in business tax rates, we isolate this effect while controlling for local economic conditions. We find higher business taxes increase consumer prices, indicating corporate taxes fall partly on consumers. The effect of business taxes on gas prices increases if consumer demand is less elastic, local markets are less competitive, and when local gas stations can coordinate prices among themselves. Overall, our results imply firms can create a tax shield by passing on business taxes to consumers.

Keywords: Corporate tax, tax incidence, tax policy

JEL Classification: D12, H22, H25, H26

Suggested Citation

Jacob, Martin and Müller, Maximilian A. and Wulff, Thorben, Do Consumers Pay the Corporate Tax? (October 11, 2019). Available at SSRN: https://ssrn.com/abstract=3468142 or http://dx.doi.org/10.2139/ssrn.3468142

Martin Jacob (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
D-56179 Vallendar, 56179
Germany

HOME PAGE: http://www.whu.edu/steuer

Maximilian A. Müller

ESMT Berlin ( email )

Schlossplatz 1
Berlin, 10178
Germany

HOME PAGE: http://faculty-research.esmt.berlin/person/maximilian-muller/bio

Thorben Wulff

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

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