Who bears the burden of corporate income taxation?

Who bears the burden of corporate income taxation?

Clemens Fuest

Centre for European Economic Research
(ZEW) and University of Mannheim


The question of who bears the burden of the corporate income tax is an important policy question, and views about the right answer differ widely. One view is that the corporate tax is borne by shareholders. Since people with high incomes usually hold a larger fraction of their assets in the form of shares, this would imply that the tax is progressive. Another view claims that the corporate income tax leads to a decline in wages and employment, which would suggest that a large part of the tax burden falls on employees. In this case, the corporate tax would not be more progressive than a tax on wages.

It is the purpose of this short paper to summarize what economic research has to say about corporate tax incidence. The key results are as follows: Most studies focus on the question of whether labour bears a significant share of the corporate tax burden and confirm that this is the case. The results suggest that wages decline by roughly 50 per cent of the additional corporate tax revenue raised. These effects can be observed in a time span of one to four years after the tax change.1

1As always views about how the literature should be interpreted differ.

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