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Economic Integration, Corporate Tax Incidence and Fiscal Compensation

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  • Nelly Exbrayat
  • Benny Geys

Abstract

Higher corporate taxes are often argued to depress wages (a tax incidence effect), while higher wages may require compensation via lower corporate tax rates (a fiscal compensation effect). Yet, existing empirical evidence ignores that i) both effects are likely to occur simultaneously (necessitating a joint estimation approach), and ii) capital mobility might play a critical moderating role for the strength of both effects. Using a panel dataset comprising 24 OECD countries over the period 1982-2007, we address both these deficiencies. This clearly illustrates the simultaneous existence of tax incidence and fiscal compensation effects. Moreover, capital mobility (and the ensuing relative bargaining power of economic agents) has a significant influence on both the prevalence and strength of these effects.
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Suggested Citation

  • Nelly Exbrayat & Benny Geys, 2016. "Economic Integration, Corporate Tax Incidence and Fiscal Compensation," The World Economy, Wiley Blackwell, vol. 39(11), pages 1792-1811, November.
  • Handle: RePEc:bla:worlde:v:39:y:2016:i:11:p:1792-1811
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    File URL: http://hdl.handle.net/10.1111/twec.12323
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    Cited by:

    1. Knaisch, Jonas & Pöschel, Carla, 2021. "Corporate income tax and wages: A meta-regression analysis," arqus Discussion Papers in Quantitative Tax Research 262, arqus - Arbeitskreis Quantitative Steuerlehre.
    2. Sokolovska, Olena, 2018. "Labor income taxation in open economies: current trends and options for reforms," MPRA Paper 86233, University Library of Munich, Germany.
    3. Olena, Sokolovska, 2017. "Corporate tax incidence and its implications for the labor market," MPRA Paper 83401, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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