Munich Personal RePEc Archive

Corporate tax incidence and its implications for the labor market

Olena, Sokolovska (2017): Corporate tax incidence and its implications for the labor market.

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The paper investigates the relationship between corporate taxation and labor market indicators. This research supports the idea that the increase in corporate income tax rates in the open economy will lead to the capital outflow to the low-tax jurisdictions, resulting in tax incidence on labor with consequent decrease in labor productivity. An empirical analysis demonstrated the negative relationship between labor freedom index and corporate tax rate. In countries with higher GDP per capita the strength of such relationship differs from countries where GDP per capita is relatively low. In terms of corporate tax incidence, this means that in developed countries the corporate tax burden is shifted onto workers in lesser extent compared with developing and emerging economies. The estimation of specific elements of labor freedom index allowed to identify main tendencies of impact of change of the corporate income tax rate on certain labor market indicators in countries with different GDP per capita. We suggested that corporate tax incidence diversely affects the labor productivity in countries with different GDP per capita, and the direction of such impact is determined by composition of labor force and openness of economy.

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