Corporate Taxes and Retail Prices

61 Pages Posted: 28 Apr 2020 Last revised: 8 Jun 2023

See all articles by Scott R. Baker

Scott R. Baker

Northwestern University, Kellogg School of Management, Department of Finance; National Bureau of Economic Research (NBER)

Stephen Teng Sun

City University of Hong Kong (CityU) - Department of Economics and Finance; City University of Hong Kong (CityU) - Department of Accountancy

Constantine Yannelis

University of Chicago

Date Written: April 2020

Abstract

Higher corporate taxes must result in lower payments to shareholders, lower wages, or higher product prices. We study the impact of corporate taxes on barcode-level product prices using linked survey and administrative data. Our empirical strategy exploits the dichotomy between the location of production and the location of sales, providing estimates free from confounding local demand shocks. We find significant effects of corporate taxes on prices with a net-of-tax elasticity of 0.24. We find null effects on prices for firms subject to personal income taxes or to full sales apportionment. Approximately half of corporate tax incidence falls on consumers, suggesting that models used by policymakers may significantly underestimate the incidence of corporate taxes on consumers. Pass-through is larger for products purchased by high-income households, higher priced goods, and in less competitive markets.

Suggested Citation

Baker, Scott R. and Sun, Stephen Teng and Yannelis, Constantine, Corporate Taxes and Retail Prices (April 2020). NBER Working Paper No. w27058, Available at SSRN: https://ssrn.com/abstract=3586190

Scott R. Baker (Contact Author)

Northwestern University, Kellogg School of Management, Department of Finance ( email )

Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Stephen Teng Sun

City University of Hong Kong (CityU) - Department of Economics and Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

City University of Hong Kong (CityU) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

Constantine Yannelis

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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