No. 15: Do consumers pay the corporate tax?

Abstract

Using granular gas price data and rich variation in corporate tax rates, we find that corporate taxes lead to higher consumer prices. Consumer prices increase more when firms have limited access to tax avoidance opportunities and to other tax shields. This effect is rooted in the adverse effect of taxes on capital investment and the passing of taxes to consumers is stronger when consumer demand is less elastic. Our results suggest that tax policies that increase statutory tax rates or combat tax avoidance may have unintended consequences for consumers through higher prices.

Participating Institutions

TRR 266‘s main locations are Paderborn University (Coordinating University), HU Berlin, and University of Mannheim. All three locations have been centers for accounting and tax research for many years. They are joined by researchers from LMU Munich, Frankfurt School of Finance and Management, WHU – Otto Beisheim School of Management, ESMT Berlin and Goethe University Frankfurt who share the same research agenda.