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Corporate Taxes and Retail Prices

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  • Scott R. Baker
  • Stephen Teng Sun
  • Constantine Yannelis

Abstract

Higher corporate taxes must result in lower payments to shareholders, lower wages, or higher product prices. We study the impact of corporate taxes on barcode-level product prices using linked survey and administrative data. Our empirical strategy exploits the dichotomy between the location of production and the location of sales, providing estimates free from confounding local demand shocks. We find significant effects of corporate taxes on prices with a net-of-tax elasticity of 0.24. We find null effects on prices for firms subject to personal income taxes or to full sales apportionment. Approximately half of corporate tax incidence falls on consumers, suggesting that models used by policymakers may significantly underestimate the incidence of corporate taxes on consumers. Pass-through is larger for products purchased by high-income households, higher priced goods, and in less competitive markets.

Suggested Citation

  • Scott R. Baker & Stephen Teng Sun & Constantine Yannelis, 2020. "Corporate Taxes and Retail Prices," NBER Working Papers 27058, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27058
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    3. Rota-Graziosi, Gregoire & Sawadogo, Fayçal, 2022. "The tax burden on mobile network operators in Africa," Telecommunications Policy, Elsevier, vol. 46(5).
    4. Eichfelder, Sebastian & Jacob, Martin & Kalbitz, Nadine & Wentland, Kelly, 2023. "How do corporate tax rates alter conforming tax avoidance?," arqus Discussion Papers in Quantitative Tax Research 277, arqus - Arbeitskreis Quantitative Steuerlehre.
    5. Belnap, Andrew & Welsch, Anthony & Williams, Braden, 2023. "Remote tax authority," Journal of Accounting and Economics, Elsevier, vol. 75(2).
    6. Elsa Allman, 2022. "Pricing climate change risk in corporate bonds," Journal of Asset Management, Palgrave Macmillan, vol. 23(7), pages 596-618, December.
    7. Chloe Allison & Neryvia Pillay, 2024. "Cash transfers and prices what is the impact of social welfare on prices," Working Papers 11057, South African Reserve Bank.
    8. Bhardwaj,Abhishek & Ghose,Devaki & Mukherjee,Saptarshi & Singh,Manpreet, 2022. "Million Dollar Plants and Retail Prices," Policy Research Working Paper Series 9995, The World Bank.
    9. Byun, Seong K. & Oh, Jong-Min & Xia, Han, 2023. "R&D tax credits, technology spillovers, and firms' product convergence," Journal of Corporate Finance, Elsevier, vol. 80(C).
    10. Jack Mintz, 2022. "A Proposal for a "Big Bang" Corporate Tax Reform," SPP Research Papers, The School of Public Policy, University of Calgary, vol. 15(7), February.

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    More about this item

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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