Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany

Clemens Fuest, Andreas Peichl and Sebastian Siegloch

No 7390, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Because of endogeneity problems very few studies have been able to identify the incidence of corporate taxes on wages. We circumvent these problems by using an 11-year panel of data on 11,441 German municipalities' tax rates, 8 percent of which change each year, linked to administrative matched employer-employee data. Consistent with our theoretical model, we find a negative effect of corporate taxation on wages: a 1 euro increase in tax liabilities yields a 77 cent decrease in the wage bill. The direct wage effect, arising in a collective bargaining context, dominates, while the conventional indirect wage effect through reduced investment is empirically small due to regional labor mobility. High and medium-skilled workers, who arguably extract higher rents in collective agreements, bear a larger share of the corporate tax burden.

Keywords: administrative data; wage incidence; business tax; local taxation (search for similar items in EconPapers)
JEL-codes: H2 H7 J3 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2013-05
New Economics Papers: this item is included in nep-acc, nep-eur, nep-hme, nep-lab, nep-lma, nep-ltv and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (51)

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Related works:
Journal Article: Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany (2018)
Working Paper: Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany (2017)
Working Paper: Do higher corporate taxes reduce wages? Micro evidence from Germany (2016)
Working Paper: Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany (2013)
Working Paper: Do higher corporate taxes reduce wages? Micro evidence from Germany (2013)
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