Do Consumers Pay the Corporate Tax?
50 Pages Posted: 22 Oct 2019
Date Written: October 11, 2019
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
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