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Which Workers Bear the Burden of Corporate Taxation and Which Firms Can Pass It On? Micro Evidence from Germany

  • Clemens Fuest

    ()

    (Oxford University Centre for Business Taxation, University of Cologne, CESifo and IZA)

  • Andreas Peichl

    (IZA, University of Cologne, ISER and CESifo)

  • Sebastian Siegloch

    ()

    (IZA and the University of Cologne)

In this paper we provide empirical evidence on the wage incidence of the German business tax, which is set at the municipal level. For our analysis, we use a very rich administrative linked employer-employee panel, covering 11 years, and link it to data on the business tax rates of about 11,500 German municipalities. On average 8% of the municipalities adjust their business tax rate per year. We are able to exploit multiple quasi-natural experiments to identify the tax incidence on wages. The detailed administrative data allow us to estimate heterogenous incidence e ects and to explore different channels of how the business tax burden is passed on. We nd a wage elasticity with respect to the e ective marginal tax rate of -0.18. Low-skilled labor shares a relatively higher burden as well as workers in firms with non-binding sectoral collective agreements or firm level bargaining contracts.

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Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 1216.

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Date of creation: 2012
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Handle: RePEc:btx:wpaper:1216
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  1. Griliches, Zvi, 1969. "Capital-Skill Complementarity," The Review of Economics and Statistics, MIT Press, vol. 51(4), pages 465-68, November.
  2. R. Alison Felix & James R. Hines, Jr., 2009. "Corporate Taxes and Union Wages in the United States," NBER Working Papers 15263, National Bureau of Economic Research, Inc.
  3. Peichl, Andreas & Siegloch, Sebastian, 2012. "Accounting for labor demand effects in structural labor supply models," Labour Economics, Elsevier, vol. 19(1), pages 129-138.
  4. Bradford, David F., 1978. "Factor prices may be constant but factor returns are not," Economics Letters, Elsevier, vol. 1(3), pages 199-203.
  5. 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.
  6. Wiji Arulampalam & Michael P Devereux & Giorgia Maffini, 2009. "The Direct Incidence of Corporate Income Tax on Wages," Working Papers 0917, Oxford University Centre for Business Taxation.
  7. Li Liu & Rosanne Altshuler, 2011. "Measuring the burden of the corporate income tax under imperfect competition," Working Papers 1105, Oxford University Centre for Business Taxation.
  8. 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.
  9. Holger Alda & Stefan Bender & Hermann Gartner, 2005. "European Data Watch: The linked employer-employee dataset created from the IAB establishment panel and the process-produced data of the IAB (LIAB)," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 125(2), pages 327-336.
  10. Dwenger, Nadja & Rattenhuber, Pia & Steiner, Viktor, 2011. "Sharing the burden: Empirical evidence on corporate tax incidence," Discussion Papers 2011/19, Free University Berlin, School of Business & Economics.
  11. R. 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.
  12. Frank Fossen & Stefan Bach, 2008. "Reforming the German Local Business Tax - Lessons from an International Comparison and a Microsimulation Analysis," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(2), pages 245-272, June.
  13. 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.
  14. 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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