Wage response to corporate income taxes: A meta‐regression analysis

Abstract

AbstractThe wage elasticity to corporate income tax (CIT) is an essential parameter for assessing tax policy reforms. This paper applies meta‐regression analysis to quantitatively review the growing empirical tax incidence literature that indicates a substantial shift of the tax burden onto employees. While most studies report a large wage‐reducing effect of the CIT, our findings suggest that estimates with positive values are published less often than they should. After accounting for the bias, we find no significant average association between wage rates and corporate taxation. We document that the tax variable, econometric method, type of tax variation, and underlying time and country coverage of studies drive the heterogeneity among reported effects. The implied best‐practice estimates suggest that the tax elasticity of wages is systematically larger for emerging countries and smaller when tax changes at the subnational level are exploited.