Paul L. Caron

Wednesday, January 31, 2018

Do Higher Corporate Taxes Reduce Wages?

Clemens Fuest (University of Munich), Andreas Peichl (University of Munich) & Sebastian Siegloch (University of Mannheim), Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany (2017):

This paper estimates the incidence of corporate taxes on wages using a 20-year panel of German municipalities exploiting 6,800 tax changes for identification. Using event study designs and differences-in-differences models, we find that workers bear about half of the total tax burden. Administrative linked employer-employee data allow us to estimate heterogeneous firm and worker effects. Our findings highlight the importance of labor market institutions and profit-shifting opportunities for the incidence of corporate taxes on wages. Moreover, we show that low-skilled, young and female employees bear a larger share of the tax burden. This has important distributive implications. 

(Hat Tip: Ted Seto.)

Scholarship, Tax | Permalink


Please note that, in theory, incidence depends on the relative elasticities of supply and demand. There are good reasons to believe that supply and demand for labor in different countries may be different for reasons having to do with both the legal environment (e.g., labor laws, other aspects of the tax system) and material constraints. While this study, which I referred to Paul, is both interesting and important, it would be a mistake to attempt to generalize it to other economies, particularly to the US.

Posted by: Theodore Seto | Jan 31, 2018 8:32:45 AM