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The Direct Incidence of Corporate Income Tax on Wages

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  • Wiji Arulampalam

    (University of Warwick and Oxford University Centre for Business Taxation)

  • Michael P Devereux

    () (Oxford University Centre for Business Taxation)

  • Giorgia Maffini

    () (University of Warwick and Oxford University Centre for Business Taxation)

Abstract

We examine how far taxes on corporate income are directly shifted onto the workforce. We use data on 55,082 companies located in nine European countries over the period 1996–2003. We identify this direct shifting through cross-company variation in tax liabilities, conditional on value added per employee. Our central estimate is that the long run elasticity of the wage bill with respect to taxation is -0.093. Evaluated at the median, this implies that an exogenous rise of $1 in tax would reduce the wage bill by 75 cents. We find only weak evidence of a difference for multinational companies.

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Bibliographic Info

Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 0917.

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Date of creation: 2009
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Handle: RePEc:btx:wpaper:0917

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Citations

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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Cited by:
  1. Bernardi, Luigi, 2009. "Le tasse in Europa dagli anni novanta
    [Taxation in Europe since the Years 1990s]    ," MPRA Paper 23441, University Library of Munich, Germany.
  2. Duanjie Chen & Jack M. Mintz, 2008. "Limited Horizons: The 2008 Report on Federal and Provincial Budgetary Tax Policies," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 270, July.
  3. Gaëtan Nicodème, 2008. "Corporate Income Tax and Economic Distortions," Working Papers CEB 08-033.RS, ULB -- Universite Libre de Bruxelles.
  4. Huizinga, Harry & Voget, Johannes & Wagner, Wolf, 2011. "International Taxation and Cross-Border Banking," CEPR Discussion Papers 8436, C.E.P.R. Discussion Papers.
  5. European Commission, 2011. "Tax Reforms in EU Member States 2011: tax policy challenges for economic growth and fiscal sustainability," Taxation Papers 28, Directorate General Taxation and Customs Union, European Commission.
  6. Alison Felix & James R. Hines, Jr., 2009. "Corporate taxes and union wages in the United States," Regional Research Working Paper RRWP 09-02, Federal Reserve Bank of Kansas City.
  7. Foremny, Dirk & Riedel, Nadine, 2012. "Business taxes and the electoral cycle," FZID Discussion Papers 43-2012, University of Hohenheim, Center for Research on Innovation and Services (FZID).
  8. David Locke Newhouse & Irene Yackovlev & Robert Gillingham, 2008. "The Distributional Impact of Fiscal Policy in Honduras," IMF Working Papers 08/168, International Monetary Fund.
  9. Clemens Fuest & Andreas Peichl & Sebastian Siegloch, 2012. "Which Workers Bear the Burden of Corporate Taxation and Which Firms Can Pass It On? Micro Evidence from Germany," Working Papers 1216, Oxford University Centre for Business Taxation.
  10. Li Liu & Rosanne Altshuler, 2011. "Measuring the burden of the corporate income tax under imperfect competition," Working Papers 1105, Oxford University Centre for Business Taxation.

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