Fuest, Peichl & Siegloch (2018): Do Higher Corporate Taxes Reduce Wages?
AER quasi-experimental study of 6,800 German municipal tax changes: workers bear about half the corporate tax burden, transmitted through rent-sharing in wage bargaining — the mechanism by which even a pure rent tax can be partly shifted to labor. The most important incidence complication in the ren
Summary
Fuest, Peichl and Siegloch, "Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany" (American Economic Review 108(2), 2018, 393–418), exploit roughly 6,800 changes in German municipal business tax rates — staggered local variation approximating a quasi-experiment — matched to administrative linked employer-employee data, to measure who actually bears the corporate income tax.[1]
Findings
- Workers bear about one-half of the total corporate tax burden through lower wages.[1]
- The effect is transmitted through wage bargaining / rent-sharing: where wages are tied to firm surpluses (collective bargaining coverage, firm-level agreements), tax changes that reduce the surplus reduce wages. Low-skilled, young, and female workers bear disproportionately more.[1]
Why This Is the File's Key Incidence Complication
The classical case for rent taxation says a tax on pure economic rent cannot be shifted — the landlord incidence result the wiki's land corpus documents (landlords cannot pass LVT to tenants). Fuest–Peichl–Siegloch shows that logic holds for the marginal-investment channel but not the bargaining channel: if workers' wages share in firm rents, then a tax that falls only on rents still reduces the pool being shared, and part of the burden reaches labor. This does not overturn the efficiency case for rent-targeting bases like the ACE or cash-flow tax — no production decision is distorted — but it disciplines the distributional claim: "rent taxes are borne by shareholders" (the US Treasury's methodological assumption, per Cronin et al. 2013) is an approximation that rent-sharing erodes. Gale & Thorpe's synthesis (Tax Policy Center 2022 / NTJ 2024) reconciles the two: allowing rent-sharing shifts more burden to labor than standard assumptions, but mostly to high-earning workers, so the tax stays highly progressive.[2]
No direct wage-incidence study of an actual rent-only tax (ACE or cash-flow) exists — the wiki states that hole plainly on the ACE page.
An Analogy Worth Watching
Methodologically this is the corporate cousin of the wiki's landlord pass-through literature (municipal-variation designs like Löffler & Siegloch — Siegloch appears in both). The land result (no pass-through of land taxes) and the corporate result (partial pass-through via bargaining) differ precisely because tenants don't bargain over the landlord's surplus, while unionized workers do — a clean illustration of why incidence follows mechanism, not slogan.
See Also
- Allowance for Corporate Equity — where this caveat is carried
- Landlords cannot pass LVT to tenants — the land counterpart
- Löffler & Siegloch — the methodological sibling
- Objection: Taxing quasi-rents kills innovation
Sources
- Clemens Fuest, Andreas Peichl & Sebastian Siegloch (2018), "Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany," American Economic Review 108(2), 393–418 — used for the half-of-burden finding, the rent-sharing mechanism, and the heterogeneity results (citation and findings snippet-corroborated across AEA/RePEc/IZA listings; direct fetch proxy-blocked). AEA
- William Gale & Samuel Thorpe (2022/2024), "The Incidence and Distributional Effects of the Corporate Income Tax: The Role of Rent Sharing," Tax Policy Center / National Tax Journal 77(4) — used for the synthesis reconciling rent-sharing with progressivity. Brookings PDF