Micro vs. Macro Corporate Tax Incidence
63 Pages Posted: 20 Dec 2023 Last revised: 18 Feb 2024
Date Written: February 16, 2024
This paper studies the unequal incidence of corporate taxes across firms and its consequences for macroeconomic outcomes. I develop a dynamic general equilibrium Harberger model with heterogeneous firms. I show that corporate tax cuts reallocate resources from labor intensive to capital intensive firms, and that this reallocation reduces workers' share of the tax burden. I confirm the core firm-level mechanisms using French employer-employee data and multiple reforms over the period 2009-2019. I calibrate the model using moments from these same data, and evaluate the short vs. long run, and micro vs. macro impact of corporate tax reforms. Taking firm heterogeneity and general equilibrium dynamics into account, workers bear 14% of the corporate income tax burden. Using estimates from micro-empirical designs that abstract from these two dimensions overestimates this share by more than 30 percentage points.
Keywords: Corporate taxation, Incidence, Heterogeneous firms
JEL Classification: H22, H25, E22, E25
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