Sharing the Burden? Empirical Evidence on Corporate Tax Incidence

This study investigates the direct incidence of the corporate income tax (CIT) through wage bargaining, using an industry-region level panel dataset on all corporations in Germany over the period 1998-2006. For the first time we account for employment effects which result from tax-induced wage changes. Workers share in reductions of the CIT burden; yet, the net effect of wage bargaining on the corporate wage bill, after an exogenous euro1 decrease in the CIT burden, is as little as 19-28 cents. This is about half of the effect obtained in prior literature focussing on wages alone.