The Incidence of the Corporate Income Tax is Irrelevant for its (Benefit-Based) Justification

Simon Naitram () and Matthew Weinzierl ()

No 29547, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Robust support for corporate income taxation is a puzzle for standard tax theory because the tax’s incidence is uncertain and unreliable. We propose a resolution: if the corporate tax is seen as a benefit-based tax, its normative appeal depends on the correspondence between its incidence and that of the benefit which corporations derive from the state’s activities. We show that a simple mechanism makes this correspondence exact—and the net incidence of the tax zero—when the tax base matches what we call the benefit base. As a result, the appeal of the corporate income tax is independent of incidence as conventionally understood.

JEL-codes: H21 H25 H41 (search for similar items in EconPapers)
Date: 2021-12
New Economics Papers: this item is included in nep-pbe and nep-pub
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