Do Consumers Pay the Corporate Tax?

51 Pages Posted: 22 Oct 2019 Last revised: 26 May 2021

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: April 27, 2020

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 find that higher business taxes increase consumer prices, indicating corporate taxes fall partly on consumers. Prices increase more strongly when consumer demand is less elastic and local markets are less competitive. The tax incidence on consumers is stronger when corporate tax accounting rules limit expense deductibility or are more strictly enforced. These results suggest that firms reduce their corporate tax burden by shifting taxes to stakeholders, which is rooted both in the underlying economics and tax accounting rules.

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? (April 27, 2020). TRR 266 Accounting for Transparency Working Paper Series No. 15, 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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