Abstract
This paper estimates the incidence of corporate taxes in an emerging economy –India- using the data from 5,666 business firms listed in the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE) for the period 2000-15. Using the dynamic panel models, we find that capital bear the burden of corporate taxation relatively more than the labour. Our findings highlight that the effective tax rate is higher for the small corporate firms than the gigantic firms. The tax policy implications for strengthening the wage bargaining frameworks is insignificant as we found the wage determination in India is mostly outside the purview of fiscal policy practices. Further research is required to understand whether less incidence of corporate taxation on wages in India is due to base erosion and profit shifting.
Highlights
The corporate tax incidence has significant policy implications for the progressivity of the tax system
This paper estimates the incidence of corporate taxes in an emerging economy –India- using the data from 5,666 business firms listed in the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE) for the period 2000-15
Using the dynamic panel models, we find that capital bear the burden of corporate taxation relatively more than the labour
Summary
The corporate tax incidence has significant policy implications for the progressivity of the tax system. Fuest , Peichl and Seigloch (2017) highlights that the cross-country studies on corporate tax incidence (such as Hassett and Mathur, 2006; Felix, 2007; Desai, Foley and Hines, 2007; Clausing, 2013; Azemar and Hubbard, 2015) failed to defend their assumptions on common trend, while single-country design studies ( such as Dwenger, Rattenhuber and Steiner, 2011; Arulampalam, Devereux and Maffini, 2012; Liu and Altshuler, 2013) have ignored the firm specific variables to explain the variation in corporate tax incidence. Unlike the recent single-country studies by Fuest, Peichl and Seigloch (2017) in the context of Germany, and Serrato and Zidar (2016) in USA, which capture the “within country variations” through statutory municipal taxes and the State-level corporate taxes using spatial equilibrium frameworks, we focus on federal corporate tax incidence at the firm level in the context of India. Our paper uses data from 5,666 corporate firms in India (listed on the Bombay Stock Exchange [BSE] and the National Stock Exchange of India [NSE]) from 2000–2015 and analyzes the impact of corporate tax on the capital and labor employed by corporations
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