The Direct Incidence of Corporate Income Tax on Wages

By W. Arulampalam, Michael P. Devereux, G. Maffini. Social Science Research Network, 2010

240 citations recorded by the source corpus.

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.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/2426b010f08b0c91d645a4e8dcbd4add13943b08

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Citations in the corpus

The Fiscal Effects of Immigration to the UK (2014, unknown): “However, although there is consensus that some of the corporate income tax burden is shifted away from shareholders, there is no agreement about how it is shared between shareholders, workers and consumers (Harberger, 1962, 2008; Auerbach, 2006; Gravelle, 2011, 2013; Arulampalam et al., 2012).”
Tax Policy and Local Labor Market Behavior (2019, background): “Second, our findings improve our understanding of the effects of corporate taxation on economic behavior, labor markets, and inequality (Kovak et al., 2017; Arulampalam et al., 2012; Fuest et al., 2018; Suárez Serrato and Zidar, 2016; Nallareddy et al., 2018; Yagan, 2015).”
The effect of tax incentives on U.S. manufacturing: Evidence from state accelerated depreciation policies (2019, background): “complements in the production process, then classic channels of tax incidence break down, and the observed compensation response must be due exclusively to the direct incidence of the corporate income tax (Arulampalam et al. (2012)).”
Corporate tax effects on the quality and quantity of FDI (2012, background): “Specifications (1) to (4) present the results for the static fixed-effects model which is described by equation (4) in the previous section.”
Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany (2018, unknown): “Following Arulampalam et al. (2012), we refer to the first channel as the direct impact.”