Passing It On: The Incidence of the Corporate Income Tax under Imperfect Competition

We model and estimate the incidence of the corporate income tax under imperfect competition. Identification comes from variation in the effective marginal tax rates across industry and time. Our empirical results suggest that labor shares the burden of corporate taxes. A ten percentage increase in the tax rates decreses the average wage rate by 0.28-0.38 percent. Consistent with our theoretical prediction, the elasticity of wage with respect to the tax rates increases with the industry concentration. Labor bears at least 42 percent of the burden of corporate income taxes