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  • 100% Who Bears the Corporate Tax? A review of What We Know October 2005
    Alan J. Auerbach

    This paper reviews what we know from economic theory and evidence about who bears the burden of the corporate income tax. Among the lessons from the recent literature are: 1. For a variety of reasons, shareholders may bear a certain portion of the corporate tax burden. In the short run, they may be unable to shift taxes on corporate capital. Even in the long run, they may be unable to shift taxes attributable to a discount on "old" capital, taxes on rents, or taxes that simply reduce the advantages of corporate ownership. Thus, the distribution of share ownership remains empirically quite relevant to corporate tax incidence analysis, though attributing ownership is itself a challenging exercise. 2. One-dimensional incidence analysis -- distributing the corporate tax burden over a representative cross-section of the population -- can be relatively uninformative about who bears the corporate tax burden, because it misses the element timing. 3. It is more meaningful to analyze the incidence of corporate tax changes than of the corporate tax in its entirety, because different components of the tax have different incidence and incidence relates to the path of the economy over time, not just in a single year.

    ...THE CORPORATE TAX? A REVIEW OF WHAT WE KNOW Alan J. Auerbach Working Paper 11686 http://www.nber.org/papers/w11686 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 October 2005 This paper was presented at the NBER’s Tax Policy and the Economy conference, held on September 15, 2005 in Washington. I am grateful to Jim Poterba, Mihir Desai, Dhammika Dharmapala, Joel...

    /papers/w11686

  • 99% The Elusive Incidence of the Corporate Income Tax: The State Case 1981
    Charles E. McLure, Jr.

    A recurring theme in the literature on taxation has been uncertainty about the incidence of the corporate income tax. The answer may be even more elusive for state taxes than for federal taxes. As seen by one state, a cor- porate income tax levied on the basis of formula apportionment of total income is a composite of taxes levied on whatever factors enter the state's apportion- ment formula. Such a tax is likely to be borne primarily by residents of the taxing state, as consumers, immobile workers, and owners of land and immobile capital. Substantial shifting to consumers or capitalists throughout the nation is unlikely.

    ...Incidence of the Corporate Income Tax: The State Case ABSTRACT A recurring theme in the literature on taxation has been uncertainty about the incidence of the corporate income tax. The answer may be even more elusive for state taxes than for federal taxes. As seen by one state, a corporate income tax levied on the basis of formula apportionment of total income is a composite of taxes levied on...

    /papers/w0616

  • 99% Who Bears the Corporate Tax? A Review of What We Know September 2006
    Alan J. Auerbach
    in Tax Policy and the Economy, Volume 20, James Poterba, editor

    ...to shift taxes attributable to a discount on "old" capital, taxes on rents, or taxes that simply reduce the advantages of corporate ownership. Thus, the distribution of share ownership remains empirically quite relevant to corporate tax incidence analysis, though attributing ownership is itself a challenging exercise. One-dimensional incidence analysisdistributing the corporate tax burden over a...

    /chapters/c0065

  • 99% Who Benefits from State Corporate Tax Cuts? A Local Labor Markets Approach with Heterogeneous Firms July 2014
    Juan Carlos Suárez Serrato, Owen Zidar

    This paper estimates the incidence of state corporate taxes on the welfare of workers, landowners, and firm owners using variation in state corporate tax rates and apportionment rules. We develop a spatial equilibrium model with imperfectly mobile firms and workers. Firm owners may earn profits and be inframarginal in their location choices due to differences in location-specific productivities. We use the reduced-form effects of tax changes to identify and estimate incidence as well as the structural parameters governing these impacts. In contrast to standard open economy models, firm owners bear roughly 40% of the incidence, while workers and landowners bear 30-35% and 25-30%, respectively.

    ...CORPORATE TAX CUTS? A LOCAL LABOR MARKETS APPROACH WITH HETEROGENEOUS FIRMS Juan Carlos Suárez Serrato Owen Zidar Working Paper 20289 http://www.nber.org/papers/w20289 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 We are very grateful for guidance and support from our advisors: Alan Auerbach, Yuriy Gorodnichenko, Patrick Kline, and Emmanuel Saez. We would...

    /papers/w20289

  • 99% The Incidence and Efficiency Costs of Corporate Taxation when Corporate and Noncorporate Firms Produce the Same Good December 1987
    Jane G. Gravelle, Laurence J. Kotlikoff

    This year marks the twenty-fifth anniversary of Arnold Harberger's celebrated model of the corporation income tax. While the model has been enormously useful as an analytical device for studying two sector economies, its usefulness for understanding the incidence and excess burden of the corporate income tax remains in question. One difficulty confronting all empirical analyses of the Harberger Model is how to treat noncorporate production in primarily corporate sectors and corporate production in primarily noncorporate sectors. The Harberger Model provides no real guide to this question since it assumes that one good is produced only by corporations and the other good is produced only by noncorporate firms. Stated differently, Harberger models the differential taxation of capital used in the production of different goods, rather than the taxation of capital used by corporations per se. This paper presents a two good model with corporate and noncorporate production of both goods. The incidence of the corporate tax in our Mutual Production Model (MPM) can differ markedly from that in the Harberger model. A hallmark of Harberger's corporate tax incidence formula is its dependence on differences across sectors in elasticities of substitution between capital and labor. In contrast, the incidence of the corporate tax in the MPM may fall 100 percent on capital regardless of sector differences in substitution elasticities. The difference between the two models in the deadweight loss from corporate taxation is also striking. Using the Harberger - Shoven data and assuming unitary substitution and demand elasticities, the deadweight loss is over ten times larger in the CES version of the MPM than in the Harberger Model. Part of the explanation for this difference is that in the Harberger Model only the difference in the average corporate tax in the two sectors is distortionary, while the entire tax is distortionary in the MPM. A second reason for the larger excess burden in the MPM is that the MPM has a very large, indeed infinite, substitution elasticity in demand between corporate and noncorporate goods; in contrast, applications of the Harberger Model assume this elasticity is quite small.

    ...THE INCIDENCE AND EFFICIENCY COSTS OF CORPORATE TAXATION WHEN CORPORATE AND NONCORPORATE FIRMS PRODUCE THE SAME GOOD Jane G. Gravelle Laurence J. Kotlikoff Working Paper No. 2462 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 December 1987 We thank Alan Auerbach, Guillermo Calvo, Christophe Chamley, Arnold Harberger, Martin Feldstein, Michael Manove, Joe...

    /papers/w2462

  • 99% Who Bears the Burden of the Corporate Tax in The Open Economy? May 2001
    Jane Gravelle, Kent Smetters

    This paper investigates the long-run incidence of the corporate income tax in an open-economy model calibrated with two economies: the United States and a larger mirror economy representing the rest of the world. Imperfect substitutability of domestic and foreign products plays a key role in limiting - often eliminating - the incidence borne by domestic labor. We reach two novel conclusions. First, contrary to conventional wisdom, our analysis reveals that most of the long-run incidence of the corporate income tax is not borne by domestic labor. Nor is much of it borne by landowners. This finding is usually true even at an implausibly large portfolio substitution elasticity. The incidence is typically borne by domestic capital, as in the original Harberger (1962) closed-economy model. Second, for those parameter values in which the incidence is not borne mostly by domestic capital, interestingly, most of the incidence is exported. The exportation of the incidence of the corporate income tax, which has received little or no attention in the previous literature, might motivate tax coordination between countries. These results are robust to a range of parameter values and model assumptions. Our model is also compatible with several empirical rigidities.

    ...OF THE CORPORATE TAX IN THE OPEN ECONOMY? Jane G. Gravelle Kent Smetters Working Paper 8280 http://www.nber.org/papers/w8280 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA02138 May 2001 We thank the participants in the Washington Tax Economists Forum and David Bradford for feedback. We are especially grateful to Harry Grubert for his numerous comments. The views...

    /papers/w8280

  • 99% An Alternative View of Tax Incidence Analysis for Developing Countries June 1990
    Anwar Shah, John Whalley

    This paper revisits the long-standing issue of the incidence of taxes in developing countries. Its central theme is that despite many decades of studies, tax incidence analyses for developing countries continue to be based upon the same shifting assumptions used in developed country studies, despite some obvious pitfalls. Taxes are assumed to be shifted forward to consumers, or backwards onto factor incomes, as has been the case for developed country tax incidence work from Bowley and Stamp to Peclunan and Okner. Developing countries typically have a much different non-tax policy and regulatory environment from developed countries, with higher protection, rationed foreign exchange, price controls, black markets, credit rationing and many other features. The paper argues that all these features can greatly complicate and even obscure the incidence effects of taxes in developing countries. For several taxes, taking such features into account can reverse signs and/or substantially revise estimates of incidence effects from conventional thinking and by substantial orders of magnitude. A final section sets out some implications for country lending programs, both by type of country and level of development, and comments on how the extent to which non-tax policy reform has already been implemented affects the significance of the points raised here.

    ...VIEW OF TAX INCIDENCE ANALYSIS FOR DEVELOPING COUNTRIES ABSTRACT This paper revisits the long-standing issue of the incidence of taxes in developing countries. Its central theme is that despite many decades of studies, tax incidence analyses for developing countries continue to be based upon the same shifting assumptions used in developed country studies, despite some obvious pitfalls. Taxes are...

    /papers/w3375

  • 99% Capital Tax Incidence: Fisherian Impressions from the Time Series August 2003
    Casey B. Mulligan

    This paper accepts for the sake of argument the hypothesis that much of the time series correlation between tax and profit rates is spurious, and shows how nonetheless time series for profit rates, tax rates, and consumption can be organized, compared and interpreted using Fisher's (1930) theory of consumption in order to understand the incidence of capital taxes. Capital taxation is associated with a wedge between anticipated aggregate consumption growth and capital rental rates, suggesting that in one way or another capital owner behavior adjusts in the direction needed for some passing' of the capital tax. Conversely, most of the medium and low frequency deviations between anticipated aggregate consumption growth and capital rental rates are associated with capital taxation, as implied by aggregate time-separable Fisherian consumption theories in which time preference, non-tax capital market distortions, aggregation biases, and other determinants of aggregate consumption growth vary little over time.

    ...TAX INCIDENCE: FISHERIAN IMPRESSIONS FROM THE TIME SERIES Casey B. Mulligan Working Paper 9916 http://www.nber.org/papers/w9916 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 August 2003 I appreciate the comments of Alan Auerbach, Austan Goolsbee, David Cutler, Marty Feldstein, Don Fullerton, and Bob Lucas, GSB Macro Lunch Eaters, seminar participants at...

    /papers/w9916

  • 99% Tax Incidence March 2002
    Don Fullerton, Gilbert E. Metcalf

    This chapter reviews the concepts, methods, and results of studies that analyze the incidence of taxes. The purpose of such studies is to determine how the burden of a particular tax is allocated among consumers through higher product prices, workers through a lower wage rate, or other factors of production through lower rates of return to those factors. The methods might involve simple partial equilibrium models, analytical general equilibrium models, or computable general equilibrium models. We review partial equilibrium models, where the burden of a tax is shown to depend on the elasticity of supply relative to the elasticity of demand. In particular, we consider partial equilibrium models with imperfect competition. Turning to a general equilibrium setting, we review the classic model of Harberger (1962) and illustrate its generality by applying it to a number of different contexts. We also use this model to demonstrate the practicality of analytical general equilibrium modeling through the use of log linearization techniques. We then turn to dynamic models to show how a tax on capital affects capital accumulation, future wage rates, and overall burdens. Such models might also provide analytical results or computational results. We also focus on relatively recent models that calculate the lifetime incidence of taxes, with both intratemporal and intertemporal redistribution. Finally, the chapter reviews the use of incidence methods and results in the policy process.

    ...TAX INCIDENCE Don Fullerton Gilbert E. Metcalf Working Paper 8829 http://www.nber.org/papers/w8829 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 March 2002 This paper is prepared for a forthcoming volume of the Handbook of Public Economics edited by Alan Auerbach and Martin Feldstein. We are grateful for helpful suggestions from Alan Auerbach, Tom Barthold...

    /papers/w8829

  • 99% The Distribution of Tax Burdens: An Introduction June 2002
    Gilbert E. Metcalf, Don Fullerton

    This paper summarizes important developments in tax incidence analysis over the past forty years. We mark the date of the beginning of modern tax incidence analysis with the publication of Harberger (1962) and discuss the relation of subsequent work to this seminal paper.

    ...OF TAX BURDENS: AN INTRODUCTION Gilbert E. Metcalf Don Fullerton Working Paper 8978 http://www.nber.org/papers/w8978 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 June 2002 This is an introduction for the forthcoming collection, The Distribution of Tax Burdens, to be published by Edward Elgar Publishing Ltd. We'd like to thank Michael J. Keen, Helen Ladd...

    /papers/w8978

  • 99% Does the Harberger Model Greatly Understate the Excess Burden of the Corporate Tax? - Another Model Says Yes October 1988
    Jane G. Gravelle, Laurence J. Kotlikoff

    An important deficiency in Harberger's (1962) model of corporate income taxation is its inability to consider both corporate and noncorporate production of the same good. This precludes analysis of within-industry substitution of noncorporate for corporate production in response to the tax. Such within-industry substitution has potentially major implications for both the excess burden and incidence of the corporate tax. In Gravelle and Kotlikoff (1988) we present a new model of the corporation income tax. The model has two key characteristics. First, corporate and noncorporate firms produce (with identical production functions) each of the model's goods both before and after corporate taxation is imposed, and second, the decision of entrepreneurs to establish unincorporated business is endogenous. Compared with the Harberger model, the new model predicts a very much larger excess burden from corporate income taxation. The incidence of the corporate tax can also differ dramatically in the two models. Several commentators on our approach suggested that while corporate and noncorporate fins produce goods that are close substitutes, they are not necessarily identical goods. Others questioned the extent to which our results hinged on the endogeneity of entrepreneurship. This paper is a response to those comments. It presents a Harberger-type model (with no entrepreneurs), but one in which each industry/sector contains corporate and noncorporate fins (with identical production functions) which produce goods that are close substitutes in demand. As in our earlier model, the scope for considerable within-industry substitution of noncorporate for corporate capital leads to a very much larger excess burden than that in the Harberger model. For example, using Harberger's original 195? data and assuming unitary substitution elasticities in production and in inter-sector demand, but substitution elasticities of 30 in intra-sector demand, the excess burden of the corporate income tax in the current model is 107 percent of tax revenue. This figure is quite close to the 123 percent figure reported in Cravelle and Kotlikoff (1988) for the case of unitary substitution elasticities in production and inter-industry demand. Both numbers are considerably larger than the 8 percent excess burden figure that arises in the traditional Harberger model with unitary substitution elasticities.

    ...corporate and noncorporate production of the same good. This precludes analysis of within-industry substitution of noncorporate for corporate production in response to the tax. Such within-industry substitution has potentially major implications for both the excess burden and incidence of the corporate tax. In Gravelle and Kotlikoff (1988) we present a new model of the corporation income tax. The...

    /papers/w2742

  • 99% Taxation and Corporate Financial Policy May 1980
    J. Gregory Ballentine, Charles E. McLure, Jr.

    A model of corporate financial policy (debt-equity ratios and dividend payout rates) is included in the Harberger general equilibrium model of incidence of the corporate income tax. Illustrative calculations of the distortions of financial policy and increases in risk premiums induced by the corporate tax are provided. Because risk premiums on corporate securities would be reduced, eliminating the corporate tax or integrating it into the personal tax would increase the income of non-corporate investors relatively more than that of investors in corporate securities, and is therefore less regressive than is commonly thought.

    ...of incidence of the corporate income tax. Illustrative calculations of the distortions of financial policy and increases in risk premiums induced by the corporate tax are provided. Because risk premiums on corporate securities would be reduced, eliminating the corporate tax or integrating it into the personal tax would increase the income of noncorporate investors relatively more than that of...

    /papers/w0243

  • 99% Tax Incidence March 1986
    Laurence J. Kotlikoff, Lawrence H. Summers

    This paper surveys major issues in the theory of tax incidence. These include the incidence of taxes in dynamic as well as static economies and open as well as closed economies. The survey does not represent a comprehensive review of the literature, rather it is offered to the reader as a pedoqogical piece that may be of use in teaching the theory of tax incidence.

    ...Tax Incidence ABSTRACT This paper surveys major issues in the theory of tax incidence. These include the incidence of taxes in dynamic as well as static economies and open as well as closed economies. The survey does not represent a comprehensive review of the literature, rather it is offered to the reader as a pedogogical piece that may be of vise in teaching the theory of tax incidence. Dr.

    /papers/w1864

  • 98% What Does the Corporate Income Tax Tax? A Simple Model without Capital July 2010
    Laurence J. Kotlikoff, Jianjun Miao

    The economics workings of the corporate income tax remain controversial. Harberger's seminal 1962 article viewed the tax as raising the cost of capital used to produce corporate goods. But corporate goods can be and generally are made by non-corporate firms, suggesting that the corporate tax penalizes the act of incorporating, not the decision of already incorporated firms to hire capital. This paper makes this point with a simple, capital-less model featuring entrepreneurs, with risky production technologies, deciding whether or not to go public. Doing so means selling shares, which is costly and triggers the firm's classification as a corporation subject to income taxation. But going public has an upside. It permits entrepreneurs to diversify their assets. In discouraging incorporation, the corporate tax taxes business risk-sharing, keeping more entrepreneurs private and, thus, exposed to more risk. The added risk experienced by these entrepreneurs limits their demands for labor whose costs must be paid come what may. And less demand for labor spells a lower wage. Thus, the corporate tax is, as a general rule, borne, in part, by labor. But it is borne primarily by high-skilled entrepreneurs who decide to remain incorporated despite the attendant tax liability. While it hurts high-skilled entrepreneurs and low-skilled workers, the corporate tax benefits middle-skilled entrepreneurs who remain private, but are able, thanks to the tax, to hire labor at a lower cost. The reduction in labor costs has one other key effect. It induces low-skilled entrepreneurs to set up their own risky businesses rather than work for others. This represents a second channel through which the corporate tax induces excessive business.

    ...CORPORATE INCOME TAX TAX? A SIMPLE MODEL WITHOUT CAPITAL Laurence J. Kotlikoff Jianjun Miao WORKING PAPER 16199 NBER WORKING PAPER SERIES WHAT DOES THE CORPORATE INCOME TAX TAX? A SIMPLE MODEL WITHOUT CAPITAL Laurence J. Kotlikoff Jianjun Miao Working Paper 16199 http://www.nber.org/papers/w16199 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 July 2010...

    /papers/w16199

  • 98% Public Sector Dynamics November 1990
    Alan J. Auerbach

    Using Musgrave's The Theory of Public Finance as a starting point, this paper reviews the scholarly developments in Public Sector Dynamics during the past three decades, placing emphasis not only on accomplishments but also areas in need of additional research. The review is organized into sections covering research on the public debt, its measurement and impact; the fiscal determinants of savings and the choice of tax base; the effects of taxation on investment and risk-taking; dynamic tax incidence; and dynamic inconsistency and public choice. Among the specific research topics considered are the Ricardian equivalence proposition, the incidence of the corporation income tax, the choice between income and consumption taxes, and political business cycles.

    ...of tax base; the effects of taxation on investment and risk-taking; dynamic tax incidence; and dynamic inconsistency and public choice. Among the specific research topics considered are the Ricardian equivalence proposition, the incidence of the corporation income tax, the choice between income and consumption taxes, and political business cycles. Alan J. Aueitach University of Pennsylvania...

    /papers/w3508

  • 98% The Value-Added Tax: A General Equilibrium Look at Its Efficiency and Incidence 1987
    Charles L. Ballard, John Karl Scholz, John B. Shoven
    in The Effects of Taxation on Capital Accumulation, Martin Feldstein, editor

    ...Tax: A General Equilibrium Look at Its Efficiency and Incidence Charles L. Ballard, John Karl Scholz, and John B. Shoven 14.1 Introduction The value-added tax (VAT) is among the most widely used tax instruments in the world, and one which is often lauded for its efficiency, simplicity, and ability to raise revenue. It is a very important source of revenue in Europe, and its adoption is being...

    /chapters/c11357

  • 98% DP 13-039
    Fuest

    ...Corporate Taxes Reduce Wages? Micro Evidence from Germany Clemens Fuest, Andreas Peichl, and Sebastian Siegloch Dis­­cus­­si­­on Paper No. 13-039 Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany Clemens Fuest, Andreas Peichl, and Sebastian Siegloch Download this ZEW Discussion Paper from our ftp server: http://ftp.zew.de/pub/zew-docs/dp/dp13039.pdf Die Dis­­cus...

    /conferences/2014/PEs14/Clemens_Peichl_siegloch.pdf

  • 98% Public Finance in a Nutshell: A Cobb Douglas Teaching Tool for General Equilibrium Tax Incidence and Excess Burden January 2017
    Don Fullerton, Chi L. Ta

    To help first- or second-year graduate students in economics apply their theoretical training, this paper shows how to solve a simple and intuitive computable general equilibrium (CGE) model using a calculator. Because this simplified Harberger model uses Cobb Douglas functional forms for utility and production, one can solve for all input and output prices and quantities with no taxes and then solve for exact measures of output with a large tax change (not using derivatives). We then show how to solve simultaneously for capital and labor prices (incidence on the sources side of income), for both output prices (incidence on the uses side), for exact measures of overall welfare loss such as the equivalent variation, for excess burden and marginal excess burden, and for the effects on revenue in the form of a Laffer Curve.

    ...TAX INCIDENCE AND EXCESS BURDEN Don Fullerton Chi L. Ta Working Paper 23064 http://www.nber.org/papers/w23064 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 January 2017 For comments and suggestions, we wish to thank Tengjiao Chen, Zhangliang Chen, Jonathan Meer, David Quigley, Juan Carlos Suárez Serrato, and students who solved our model as homework to...

    /papers/w23064

  • 98% Alternative Measures of the Differentials Against Net Corporate Earnings and Stockholders' Income 1958
    Daniel M. Holland
    in The Income Tax Burden on Stockholders, Daniel M. Holland

    ...out-of-print volume from the National Bureau of Economic Research Volume Title: The Income Tax Burden on Stockholders Volume Author/Editor: Daniel M. Holland Volume Publisher: Princeton University Press Volume URL: http://www.nber.org/books/holl58-1 Publication Date: 1958 Chapter Title: Alternative Measures of the Differentials against Net Corporate Earnings and Stockholders' Income Chapter Author...

    /chapters/c2609

  • 98% Measuring Tax Burden: A Historical Perspective January 1991
    B. K. Atrostic, James R. Nunns
    in Fifty Years of Economic Measurement: The Jubilee of the Conference on Research in Income and Wealth, Ernst R. Berndt and Jack E. Triplett, editors

    ...taxes are distributed among taxpayers with different abilities to pay. The second, horizontal equity, concerns the way taxes are distributed among taxpayers with the same ability to pay. Tax burden measures thus answer broad economic and social questions about the effect of tax policy on the distribution of income and wealth. The history of these measures incorporates the histories of economic and...

    /chapters/c5981

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