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 exploiting 6,800 tax changes for identification. Using event study designs and difference-in-differences models, we find that workers bear about one-half of the total tax burden. Administrative linked employer-employee data allow us to estimate heterogeneous firm and worker effects. Our findings highlight the importance of labor market institutions and profit-shifting opportunities for the incidence of corporate taxes on wages. Moreover, we show that low-skilled, young, and female employees bear a larger share of the tax burden. This has important distributive implications.

Fuest, Clemens, Andreas Peichl and Sebastian Siegloch (2018), Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany, American Economic Review Vol. 108 (2) , 393-418