IDEAS home Printed from https://ideas.repec.org/p/eca/wpaper/2013-285703.html
   My bibliography  Save this paper

Corporate Income Taxes and (Un-)Employment in the OECD

Author

Listed:
  • Antonio Estache
  • Beni Kouevi Gath

Abstract

This paper assesses how corporate income tax rate (CITR) changes and the aggregate unemployment rate are related in the OECD. The analysis is based on a sample of 20 OECD countries over the period 1999 to 2014. In contrast to earlier cross-country research, we account explicitly for differences in labor market policies and institutions. The main result is that, on average, a CITR cut is associated with an increase in the unemployment rate. This implies that, for this sample, the substitution effect of the tax rate cut on jobs dominates its output effect. This is consistent with a significant switch to less labor intensive capital which is not compensated by a new demand induced by the output effect of the tax cut. Labor market and structural characteristics differences across countries explain differences in the relative strength of these two effects. We also find that differences in reactions to the 2008 Subprime crisis also impacted the relative size of these two effects.

Suggested Citation

  • Antonio Estache & Beni Kouevi Gath, 2019. "Corporate Income Taxes and (Un-)Employment in the OECD," Working Papers ECARES 2019-11, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:eca:wpaper:2013/285703
    as

    Download full text from publisher

    File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/285703/3/2019-11-ESTACHE_KOUEVIGATH-corporate.pdf
    File Function: Œuvre complète ou partie de l'œuvre
    Download Restriction: no

    References listed on IDEAS

    as
    1. Michèle Belot & Jan C. van Ours, 2004. "Does the recent success of some OECD countries in lowering their unemployment rates lie in the clever design of their labor market reforms?," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 621-642, October.
    2. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215-215.
    3. Daron Acemoglu & Pascual Restrepo, 2017. "Robots and Jobs: Evidence from US Labor Markets," Boston University - Department of Economics - Working Papers Series dp-297, Boston University - Department of Economics.
    4. Stephen Nickell & Luca Nunziata & Wolfgang Ochel, 2005. "Unemployment in the OECD Since the 1960s. What Do We Know?," Economic Journal, Royal Economic Society, vol. 115(500), pages 1-27, January.
    5. John Duffy & Chris Papageorgiou & Fidel Perez-Sebastian, 2004. "Capital-Skill Complementarity? Evidence from a Panel of Countries," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 327-344, February.
    6. Daphne Chen & Shi Qi & Don Schlagenhauf, 2018. "Corporate Income Tax, Legal Form of Organization, and Employment," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(4), pages 270-304, October.
    7. Leon Bettendorf & Albert van der Horst & Ruud A. De Mooij, 2009. "Corporate Tax Policy and Unemployment in Europe: An Applied General Equilibrium Analysis," The World Economy, Wiley Blackwell, vol. 32(9), pages 1319-1347, September.
    8. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
    9. Nicodeme, Gaetan, 2001. "Computing effective corporate tax rates: comparisons and results," MPRA Paper 3808, University Library of Munich, Germany.
    10. Andrea Bassanini & Romain Duval, 2007. "The determinants of unemployment across OECD countries: Reassessing the role of policies and institutions," OECD Economic Studies, OECD Publishing, vol. 2006(1), pages 7-86.
    11. André Sapir, 2006. "Globalization and the Reform of European Social Models," Journal of Common Market Studies, Wiley Blackwell, vol. 44(2), pages 369-390, June.
    12. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 449-495, October.
    13. Horst Feldmann, 2011. "The Unemployment Puzzle of Corporate Taxation," Public Finance Review, , vol. 39(6), pages 743-769, November.
    14. Daron Acemoglu & Pascual Restrepo, 2017. "Robots and Jobs: Evidence from US Labor Markets," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-297, Boston University - Department of Economics.
    15. Gravelle, Jennifer, 2013. "Corporate Tax Incidence: Review of General Equilibrium Estimates and Analysis," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(1), pages 185-214, March.
    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.
    17. Michael P Devereux, 2007. "The Impact of Taxation on the Location of Capital, Firms and Profit: a Survey of Empirical Evidence," Working Papers 0702, Oxford University Centre for Business Taxation.
    18. Antonio Estache & Renaud Foucart, 2018. "On the Political Economy of Industrial, Labor and Social Reforms as Complements," Working Papers ECARES 2018-13, ULB -- Universite Libre de Bruxelles.
    19. Clausing, Kimberly A., 2013. "Who Pays the Corporate Tax in a Global Economy?," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(1), pages 151-184, March.
    20. Bouzid,Bechir Naier, 2016. "Dynamic relationship between corruption and youth unemployment : empirical evidences from a system GMM approach," Policy Research Working Paper Series 7842, The World Bank.
    21. Xiaobing Shuai & Christine Chmura, 2013. "The Effect of State Corporate Income Tax Rate Cuts on Job Creation," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 48(3), pages 183-193, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    corporate taxation ; fiscal policies;

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:eca:wpaper:2013/285703. 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: (Benoit Pauwels). General contact details of provider: http://edirc.repec.org/data/arulbbe.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 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.

    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.