Do Consumers Pay the Corporate Tax?
49 Pages Posted: 22 Oct 2019 Last revised: 17 Jun 2020
Date Written: April 27, 2020
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
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