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This paper provides evidence that corporate taxes impact retail product prices, and that a significantportion of corporate tax incidence falls on consumers.
The fact that corporate taxes affect product prices, as well as payouts to shareholders andwages, has important implications for tax policy. In particular, models used by policymakerslike the CBO and US Treasury may underestimate the incidence of corporate taxes on consumers
If corporate taxes are partially incident on consumers, ratherthan primarily being borne by shareholders and workers, There remain several fruitful avenues for further exploration. First, our analysis necessarilthese taxes may be much less progressive than is commonly asserted. This is especially true since we find that lower priced goods and goods purchased by low income households are the ones most sensitive to changes in corporate taxes.
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Using granular gas price data and rich variation in corporate tax rates, we find that corporate taxes increase consumer prices, especially when consumer demand is less elastic and markets are less competitive. The tax incidence on consumers is also stronger when tax avoidance opportunities and other tax shields are limited. We additionally show that shifting taxes to consumers reduces the impact of taxes on organizational form choice and growth. Our results suggest that firms reduce their tax burden by shifting taxes to stakeholders, which is rooted in firms’ market power and the unavailability of other strategies reducing the tax burden
Using census data on the gas prices of nearly all German gas stations and local variations in business tax rates in 4,507 municipalities, we show that higher local business taxes increase consumer prices. Hence, part of the corporate tax incidence appears to fall on consumers. We further show that the effect of business taxes on gas prices increases when gas stations have greater market power and when tax avoidance opportunities or other tax shields are limited. Finally, the results of our supplemental tests further suggest that shifting taxes to consumers reduces the impact of taxes on organizational form choice and growth and could result in greater pre-tax profitability