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The direct incidence of corporate income tax on wages

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  • Arulampalam, Wiji
  • Devereux, Michael P.
  • Maffini, Giorgia

Abstract

A stylised model is provided to show how the direct effect of corporate income tax on wages can be identified in a bargaining framework using cross-company variation in tax liabilities, conditional on value added per employee. Using data on 55,082 companies located in nine European countries over the period 1996–2003, we estimate the long run elasticity of the wage bill with respect to taxation to be −0.093. Evaluated at the mean, this implies that an exogenous rise of $1 in tax would reduce the wage bill by 49 cents. Only a weak evidence of a difference for multinational companies is found.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 56 (2012)
Issue (Month): 6 ()
Pages: 1038-1054

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Handle: RePEc:eee:eecrev:v:56:y:2012:i:6:p:1038-1054

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Web page: http://www.elsevier.com/locate/eer

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Keywords: Effective incidence; Corporate tax;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Corporate tax incidence: some evidence
    by chris dillow in Stumbling and Mumbling on 2010-04-11 10:43:36
  2. PWCs total tax contribution is corporate spin that should be rejected not praised by government ministers
    by TJN in tax justice network on 2011-03-01 13:59:00
  3. Ritchie puts us straight on the incidence of the corporate income tax
    by Tim Worstall in Tim Worstall on 2011-03-01 15:34:21
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