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Measuring the burden of the corporate income tax under imperfect competition

  • Li Liu

    ()

    (Centre for Business Taxation, University of Oxford)

  • Rosanne Altshuler

    ()

    (Department of Economics, Rutgers University)

We model and estimate the incidence of the corporate income tax under imperfect competition. Identification comes from variation in effective marginal tax rates in the United States across industries and time. Our empirical results suggest that labor bears a significant portion of the burden of the corporate income tax. In addition, we find that the elasticity of wages with respect to the corporate marginal effective tax rate increases with industry concentration. Over all industries, our estimates suggest that a one dollar increase in corporate tax revenue decreases wages by around 60 cents.

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File URL: http://www.sbs.ox.ac.uk/sites/default/files/Business_Taxation/Docs/Publications/Working_Papers/Series_11/WP1105.pdf
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Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 1105.

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Date of creation: 2011
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Handle: RePEc:btx:wpaper:1105
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  11. Josh Ederington & Arik Levinson & Jenny Minier, 2003. "Footloose and Pollution-Free," NBER Working Papers 9718, National Bureau of Economic Research, Inc.
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  13. Dwenger, Nadja & Steiner, Viktor, 2012. "Profit Taxation And The Elasticity Of The Corporate Income Tax Base: Evidence From German Corporate Tax Return Data," National Tax Journal, National Tax Association, vol. 65(1), pages 118-50, March.
  14. Helwege, Jean, 1992. "Sectoral Shifts and Interindustry Wage Differentials," Journal of Labor Economics, University of Chicago Press, vol. 10(1), pages 55-84, January.
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  16. 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.
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  18. Timothy J. Besley & Harvey S. Rosen, 1999. "Vertical Externalities in Tax Setting: Evidence from Gasoline and Cigarettes," NBER Working Papers 6517, National Bureau of Economic Research, Inc.
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  20. William T. Dickens & Lawrence F. Katz, 1986. "Interindustry Wage Differences and Industry Characteristics," NBER Working Papers 2014, National Bureau of Economic Research, Inc.
  21. Esteller-More, Alex & Sole-Olle, Albert, 2001. "Vertical income tax externalities and fiscal interdependence: evidence from the US," Regional Science and Urban Economics, Elsevier, vol. 31(2-3), pages 247-272, April.
  22. Jennifer C. Gravelle, 2010. "Corporate Tax Incidence: Review of General Equilibrium Estimates and Analysis: Working Paper 2010-03," Working Papers 21486, Congressional Budget Office.
  23. Rosanne Altshuler & Harry Grubert, 2004. "Taxpayer Responses to Competitive Tax Policies and Tax Policy Responses to Competitive Taxpayers: Recent Evidence," Departmental Working Papers 200406, Rutgers University, Department of Economics.
  24. Mutti, John & Grubert, Harry, 1985. "The taxation of capital income in an open economy: the importance of resident-nonresident tax treatment," Journal of Public Economics, Elsevier, vol. 27(3), pages 291-309, August.
  25. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  26. Gravelle, Jennifer, 2013. "Corporate Tax Incidence: Review Of General Equilibrium Estimates And Analysis," National Tax Journal, National Tax Association, vol. 66(1), pages 185-214, March.
  27. Alison Felix, 2009. "Do state corporate income taxes reduce wages?," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 77-102.
  28. Alan J. Auerbach, 2005. "Who Bears the Corporate Tax? A review of What We Know," NBER Working Papers 11686, National Bureau of Economic Research, Inc.
  29. Davidson, Carl & Martin, Lawrence W, 1985. "General Equilibrium Tax Incidence under Imperfect Competition: A Quantity-setting Supergame Analysis," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1212-23, December.
  30. 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 1208-31, October.
  31. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215.
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