Business tax , wage incidence , administrative data , local taxation
Abstract:
This paper estimates the incidence of corporate taxes on wages using a 20-year panel of German municipalities. Administrative linked employer-employee data allows estimating heterogeneous worker and firm effects. We set up a general theoretical
framework showing that corporate taxes can have a negative effect on wages in various labor market models. Using an event study design, we test the predictions of the theory. Our results indicate that workers bear about 40% of the total tax
burden. Empirically, we confirm the importance of both labor market institutions and profit shifting possibilities for the incidence of corporate taxes on wages.
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