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The Direct Incidence of Corporate Income Tax on Wages

Listed author(s):
  • Arulampalam, Wiji

    ()

    (University of Warwick)

  • Devereux, Michael P.

    ()

    (University of Oxford)

  • Maffini, Giorgia

    ()

    (University of Oxford)

We examine the extent to which 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 the long run elasticity of the wage bill with respect to taxation is -0.093. Evaluated at the mean, this implies that an exogenous rise of $1 in tax would reduce the wage bill by 49 cents. We find only weak evidence of a difference for multinational companies.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5293.

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Length: 46 pages
Date of creation: Oct 2010
Publication status: published in: European Economic Review, 2012, 56 (6), 1038-1054
Handle: RePEc:iza:izadps:dp5293
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