Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany

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 firrm 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.

Fuest, Clemens, Andreas Peichl and Sebastian Siegloch (2016), Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany, ZEW Discussion Paper No. 16-003, Mannheim.