IDEAS home Printed from https://ideas.repec.org/a/fip/fedker/y2009iqiip77-102nv.94no.2.html
   My bibliography  Save this article

Do state corporate income taxes reduce wages?

Author

Listed:
  • Alison Felix

Abstract

Amid falling revenues and impending budget shortfalls, state policymakers must find ways to increase revenue, cut spending, or both. At the same time, they must develop policies that attract or keep businesses and jobs. Some policymakers may consider raising corporate tax rates because it avoids directly taxing workers who are already suffering the effects of this recession. But as states reevaluate their current tax policy, it is important to consider the effects of each tax component. One important question is: Who will bear the burden of the taxes? ; State corporate income taxes are complex, and thus the answer to this question is far from obvious. Many believe that the state corporate tax structure is highly progressive because the corporate capital taxed is owned disproportionately by wealthy individuals. In today's economy, however, the burden of the corporate tax may have shifted to consumers or labor, resulting in a less progressive tax structure. ; Research has shown that in some cases labor bears a substantial weight of the corporate tax. While this burden has fluctuated over time, the relationship between corporate taxes and wages has been consistently negative. In other words, higher corporate taxes are typically associated with lower wages. ; Felix examines the impact of state corporate taxes on wages. She shows that corporate taxes reduce wages and that the magnitude of the negative relationship between the taxes and wages has increased over the past 30 years. She also finds that state corporate taxes have a larger negative effect on more highly educated workers.

Suggested Citation

  • Alison Felix, 2009. "Do state corporate income taxes reduce wages?," Economic Review, Federal Reserve Bank of Kansas City, vol. 94(Q II), pages 77-102.
  • Handle: RePEc:fip:fedker:y:2009:i:qii:p:77-102:n:v.94no.2
    as

    Download full text from publisher

    File URL: https://www.kansascityfed.org/documents/1393/2009-Do%20State%20Corporate%20Income%20Taxes%20Reduce%20Wages%3F.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kevin A. Hassett & Aparna Mathur, 2006. "Taxes and Wages," AEI Economics Working Papers 49800, American Enterprise Institute.
    2. Arulampalam, Wiji & Devereux, Michael P. & Maffini, Giorgia, 2012. "The direct incidence of corporate income tax on wages," European Economic Review, Elsevier, vol. 56(6), pages 1038-1054.
    3. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215-215.
    4. Goolsbee, Austan & Maydew, Edward L., 2000. "Coveting thy neighbor's manufacturing: the dilemma of state income apportionment," Journal of Public Economics, Elsevier, vol. 75(1), pages 125-143, January.
    5. O. Ashenfelter & D. Card (ed.), 1999. "Handbook of Labor Economics," Handbook of Labor Economics, Elsevier, edition 1, volume 3, number 3.
    6. Gyourko, Joseph & Tracy, Joseph, 1989. "The Importance of Local Fiscal Conditions in Analyzing Local Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1208-1231, October.
    7. Charles E. McLure Jr., 1981. "The Elusive Incidence of the Corporate Income Tax: The State Case," Public Finance Review, , vol. 9(4), pages 395-413, October.
    8. Altonji, Joseph G. & Blank, Rebecca M., 1999. "Race and gender in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 48, pages 3143-3259, Elsevier.
    9. Alison Felix, 2007. "Passing the burden: corporate tax incidence in open economies," Regional Research Working Paper RRWP 07-01, Federal Reserve Bank of Kansas City.
    10. Chris Farrell, 1996. "The economic war among the states: an overview," The Region, Federal Reserve Bank of Minneapolis, vol. 10(Jun), pages 4-7.
    11. David Orr, 1999. "Book," Journal of Industrial Ecology, Yale University, vol. 3(4), pages 155-156, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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. Dan Rickman & Hongbo Wang, 2020. "U.S. State And Local Fiscal Policy And Economic Activity: Do We Know More Now?," Journal of Economic Surveys, Wiley Blackwell, vol. 34(2), pages 424-465, April.
    3. Liu, Li & Altshuler, Rosanne, 2013. "Measuring the Burden of the Corporate Income Tax Under Imperfect Competition," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(1), pages 215-237, March.
    4. Nadja Dwenger & Pia Rattenhuber & Viktor Steiner, 2019. "Sharing the Burden? Empirical Evidence on Corporate Tax Incidence," German Economic Review, Verein für Socialpolitik, vol. 20(4), pages 107-140, November.
    5. Kenneth J. McKenzie & Ergete Ferede, 2017. "Who Pays the Corporate Tax?: Insights from the Literature and Evidence for Canadian Provinces," SPP Research Papers, The School of Public Policy, University of Calgary, vol. 10(6), April.
    6. Timothy J. Goodspeed, 2012. "The Incidence of Bank Regulations and Taxes on Wages: Evidence from US States," CESifo Working Paper Series 4026, CESifo.
    7. Yuya Kikuchi & Toshiki Tamai, 2019. "Tax competition, unemployment, and intergovernmental transfers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(4), pages 899-918, August.
    8. Jennifer C. Gravelle, 2011. "Corporate Tax Incidence: A Review of Empirical Estimates and Analysis: Working Paper 2011-01," Working Papers 41511, Congressional Budget Office.
    9. Yihua Yu & Dan S. Rickman, 2013. "US state and local fiscal policies and non-metropolitan area economic performance: A spatial equilibrium analysis," Papers in Regional Science, Wiley Blackwell, vol. 92(3), pages 579-597, August.
    10. Olena, Sokolovska, 2017. "Corporate tax incidence and its implications for the labor market," MPRA Paper 83401, University Library of Munich, Germany.
    11. Buiter, Willem H. & Sibert, Anne, 2018. "Corporate Profit Taxes, Capital Expenditure and Real Wages: The analytics behind a contentious debate," CEPR Discussion Papers 12932, C.E.P.R. Discussion Papers.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nadja Dwenger & Pia Rattenhuber & Viktor Steiner, 2019. "Sharing the Burden? Empirical Evidence on Corporate Tax Incidence," German Economic Review, Verein für Socialpolitik, vol. 20(4), pages 107-140, November.
    2. Clemens Fuest & Andreas Peichl & Sebastian Siegloch, 2018. "Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany," American Economic Review, American Economic Association, vol. 108(2), pages 393-418, February.
    3. Liu, Li & Altshuler, Rosanne, 2013. "Measuring the Burden of the Corporate Income Tax Under Imperfect Competition," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(1), pages 215-237, March.
    4. Thomas K. Bauer & Tanja Kasten & Lars-H. R. Siemers, 2017. "Business Taxation and Wages: Redistribution and Asymmetric Effects," MAGKS Papers on Economics 201732, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    5. 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.
    6. Fuest, Clemens & Peichl, Andreas & Siegloch, Sebastian, 2015. "Do Higher Corporate Taxes Reduce Wages?," IZA Discussion Papers 9606, Institute of Labor Economics (IZA).
    7. Clemens Fuest & Andreas Peichl & Sebastian Siegloch, 2013. "Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany," CESifo Working Paper Series 4247, CESifo.
    8. Agarwal, Samiksha & Chakraborty, Lekha, 2018. "Who Bears the Corporate Tax Incidence? Empirical Evidence from India," MPRA Paper 85186, University Library of Munich, Germany.
    9. Juan Carlos Suárez Serrato & Owen Zidar, 2016. "Who Benefits from State Corporate Tax Cuts? A Local Labor Markets Approach with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 106(9), pages 2582-2624, September.
    10. Jennifer C. Gravelle, 2011. "Corporate Tax Incidence: A Review of Empirical Estimates and Analysis: Working Paper 2011-01," Working Papers 41511, Congressional Budget Office.
    11. Fabien Candau & Jacques Le Cacheux, 2018. "Taming Tax Competition with a European Corporate Income Tax," Revue d'économie politique, Dalloz, vol. 128(4), pages 575-611.
    12. Li, Guangzhong & Wu, Cen & Zheng, Ying, 2020. "Employee protection and the tax sensitivity of wages: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 66(C).
    13. 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.
    14. Thomas K. Bauer & Tanja Kasten & Lars-H. R. Siemers, 2012. "Business taxation and wages: evidence from individual panel data," Volkswirtschaftliche Diskussionsbeiträge 153-12, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
    15. Mittermaier, Ferdinand & Rincke, Johannes, 2013. "Do countries compensate firms for international wage differentials?," Journal of Public Economics, Elsevier, vol. 102(C), pages 23-36.
    16. Samiksha Agarwal & Lekha Chakraborty, 2019. "Business Taxation in an Emerging Economy: Analysing Corporate Tax Incidence," Review of European Studies, Canadian Center of Science and Education, vol. 11(2), pages 1-8, December.
    17. Pinto, Santiago M., 2007. "Corporate profit tax, capital mobility, and formula apportionment," Journal of Urban Economics, Elsevier, vol. 62(1), pages 76-102, July.
    18. Peichl, Andreas & Fuest, Clemens & Siegloch, Sebastian, 2013. "Wage Incidence of Local Corporate Taxation - Micro Evidence from Germany," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79916, Verein für Socialpolitik / German Economic Association.
    19. Arulampalam, Wiji & Devereux, Michael P. & Maffini, Giorgia, 2012. "The direct incidence of corporate income tax on wages," European Economic Review, Elsevier, vol. 56(6), pages 1038-1054.
    20. R. Alison Felix, 2007. "Passing the Burden: Corporate Tax Incidence in Open Economies," LIS Working papers 468, LIS Cross-National Data Center in Luxembourg.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedker:y:2009:i:qii:p:77-102:n:v.94no.2. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/frbkcus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (email available below). General contact details of provider: https://edirc.repec.org/data/frbkcus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.