The Incidence of the Corporate Profits Tax Revisited: A Post Keynesian Approach

Who bears the burden of the corporate income tax has been a topic of considerable discussion—and disagreement—among economists. Analyses within a post Keynesian framework have not, however, been included in the most widely cited literature surveys. In this working paper, Anthony J. Laramie constructs a post Keynesian model (á la Kalecki) in order to estimate the short-and long-run incidence of a rise in the corporate profits tax. He finds that the incidence of an increase in such a tax depends on (1) the government's budget stance, (2) the reaction of personal savings to the tax, (3) the reaction of investment to the tax in the long run, and (4) the change in corporate markups with respect to the tax. In the short run, the latter three (private sector) factors were found to have relatively small effects on the incidence of an increase in the profits tax. In the longer run, the extent of any shifting occurs will be determined politically through the government's budget stance.