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The Direct Incidence of Corporate Income Tax on Wages

  • 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)

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 $1 of additional tax reduces wages by 92 cents in the long run. The incidence of a $1 fall in value added is smaller, consistent with our wage bargaining model. We find only weak evidence of a difference in the effective incidence of taxes paid by multinational companies.

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Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 0707.

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Date of creation: 2007
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Handle: RePEc:btx:wpaper:0707
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