Job Market Paper

"The Labor Market Effects of Corporate Taxation: Evidence from Germany"


How does corporate taxation influence labor market outcomes? Using linked German employer-employee data and variation from a locally determined corporate income tax, I leverage a triple difference strategy to evaluate labor market outcomes for establishments and individuals. I find that a one percentage point corporate tax increase induces treated establishments responsible for paying the tax to contemporaneously reduce employment by 1% relative to untreated establishments, but has no immediate effect on individual wages. Over a three year period, employment continues to fall while wages remain stagnant. Testing for heterogeneous effects, I find that the wage rigidity persists across establishments operating under a union contract and decentralized establishments without any collective bargaining agreement. Finally, I show that the negative employment impacts are larger for small and medium size establishments, suggesting that the effects of corporate taxation appear strongest among credit-constrained establishments.

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