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Business Taxation and Wages: Redistribution and Asymmetric Effects

Thomas Bauer (), Tanja Kasten () and Lars Siemers ()
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Tanja Kasten: Deutsche Rentenversicherung Bund

MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: Empirical evidence on the degree of business-tax shifting is rare. It remains open to which extent the tax burden is shifted, whether there are differences for tax increases and decreases, or whether there exists some treatment heterogeneity. Using a large administrative panel data set, we exploit the regional variation of the German business-income taxation and find that 65% to at most 93% is shifted to labour through real wage adjustments. We find that business taxation increases wage inequality significantly. Workers in a weak labour-market position bear the highest part of business taxation. The incidence effect of tax reliefs is significantly higher than that of tax increases. Therefore, reducing business taxes might, surprisingly, effectively reduce inequality.

Keywords: tax incidence; profit taxation; wages; inequality; asymmetric effects (search for similar items in EconPapers)
JEL-codes: H22 H25 H32 J31 J38 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-lma, nep-pbe and nep-pub
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:201732

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