Working Paper: NBER ID: w27058
Authors: Scott R. Baker; Stephen Teng Sun; Constantine Yannelis
Abstract: Higher corporate taxes must result in lower payments to shareholders, lower wages, or higher product prices. We study the impact of corporate taxes on barcode-level product prices using linked survey and administrative data. Our empirical strategy exploits the dichotomy between the location of production and the location of sales, providing estimates free from confounding local demand shocks. We find significant effects of corporate taxes on prices with a net-of-tax elasticity of 0.24. We find null effects on prices for firms subject to personal income taxes or to full sales apportionment. Approximately half of corporate tax incidence falls on consumers, suggesting that models used by policymakers may significantly underestimate the incidence of corporate taxes on consumers. Pass-through is larger for products purchased by high-income households, higher priced goods, and in less competitive markets.
Keywords: Corporate Taxes; Retail Prices; Tax Incidence
JEL Codes: G38; H22; H25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Corporate taxes (H29) | Retail prices (P22) |
| Corporate taxes (H29) | Consumer burden (D11) |
| Corporate taxes (H29) | Worker burden (J32) |
| Corporate taxes (H29) | Shareholder burden (G32) |
| Corporate taxes (H29) | Passthrough to prices (P22) |