Who bears the costs of the corporate income tax? Evidence from state tax rate changes and firm-level accounting data


Shevlin, Terry ; Campbell, Stephen ; Lee, Yoojin ; Venkat, Aruhn



URL: https://scholarspace.manoa.hawaii.edu/bitstream/10...
Document Type: Working paper
Year of publication: 2018
Place of publication: Irvine, CA
Publication language: English
Institution: Business School > Accounting & Taxation (Juniorprofessur) (Campbell 2019-)
Subject: 330 Economics
Abstract: We examine the incidence of the corporate income tax. Tax incidence theory suggests that corporate income taxation affects the supply of capital, resulting in changes to output, demand for supplies and demand for labor (Harberger 1962). Prior studies suggest that shareholders ultimately bear incidence (Gravelle and Smetters 2006). Based on these studies, we first hypothesize that tax changes affect firms’ equity financing, consistent with taxes affecting the supply of capital. Next, we hypothesize that tax changes affect firms’ investment. Third, we hypothesize that consumers, suppliers, employees in addition to shareholders all bear the incidence of the corporate income tax. We also hypothesize that non-state governments bear incidence because firms will avoid more (less) non-state taxes in response to state tax rate increases (decreases). We use difference-in-differences regressions with state corporate income tax changes as plausibly exogenous shocks to test our hypotheses. We find that equity issuances and investment are both responsive to state tax rate increases, but not decreases. Similarly, we find that consumers, suppliers, employees and non-state governments bear incidence following state tax rate increases but not decreases. We also perform several cross-sectional tests and find results consistent with our hypotheses. In an additional test, we find that large tax decreases lead to higher wages, suggesting that labor captures some of the benefits of a tax decrease. Our study contributes to the literature on the incidence of the corporate income tax.

Dieser Datensatz wurde nicht während einer Tätigkeit an der Universität Mannheim veröffentlicht, dies ist eine Externe Publikation.




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Shevlin, Terry ; Campbell, Stephen ; Lee, Yoojin ; Venkat, Aruhn (2018) Who bears the costs of the corporate income tax? Evidence from state tax rate changes and firm-level accounting data. Irvine, CA [Working paper]


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