A Simple Model of Corporate Tax Incidence

Dustin Swonder and Damián Vergara

AEA Papers and Proceedings, 2024, vol. 114, 352-57

Abstract: We analyze the incidence of a linear corporate tax using a simple and portable competitive general equilibrium model in which capital owners choose to invest either in domestic production or a foreign investment opportunity and workers make extensive margin labor supply decisions. Our analysis explores the effect of corporate taxation on wages, employment, domestic profits, and domestic investment. Analytical results and numerical simulations generate insights in line with recent empirical evidence on corporate tax incidence: the burden of the corporate tax is shared between workers and firms, with larger responses among more capital-intensive firms.

JEL-codes: D22 G31 H22 H25 J22 J31 L25 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1257/pandp.20241096

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