Do higher corporate taxes reduce wages? Micro evidence from Germany
AbstractBecause of endogeneity problems very few studies have been able to identify the incidence of corporate taxes on wages. We circumvent these problems by using an 11-year panel of data on 11,441 German municipalities' tax rates, 8 percent of which change each year, linked to administrative matched employer-employee data. Consistent with our theoretical model, we find a negative effect of corporate taxation on wages: a 1 euro increase in tax liabilities yields a 77 cent decrease in the wage bill. The direct wage effect, arising in a collective bargaining context, dominates, while the conventional indirect wage effect through reduced investment is empirically small due to regional labor mobility. High and medium-skilled workers, who arguably extract higher rents in collective agreements, bear a larger share of the corporate tax burden. --
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Bibliographic InfoPaper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 13-039.
Date of creation: 2013
Date of revision:
business tax; wage incidence; administrative data; local taxation;
Other versions of this item:
- Fuest, Clemens & Peichl, Andreas & Siegloch, Sebastian, 2013. "Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany," IZA Discussion Papers 7390, Institute for the Study of Labor (IZA).
- Clemens Fuest & Andreas Peichl & Sebastian Siegloch, 2013. "Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany," CESifo Working Paper Series 4247, CESifo Group Munich.
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- H7 - Public Economics - - State and Local Government; Intergovernmental Relations
- J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
This paper has been announced in the following NEP Reports:
- NEP-ACC-2013-07-15 (Accounting & Auditing)
- NEP-ALL-2013-07-15 (All new papers)
- NEP-HME-2013-07-15 (Heterodox Microeconomics)
- NEP-LAB-2013-07-15 (Labour Economics)
- NEP-LMA-2013-07-15 (Labor Markets - Supply, Demand, & Wages)
- NEP-PBE-2013-07-15 (Public Economics)
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