Capitalists, Workers and Landlords: A Comprehensive Analysis of Corporate Tax Incidence

This paper presents novel estimates of the incidence of corporate taxes by measuring the effect of local business taxes on the welfare of commercial landowners, residential landowners, firm owners, and workers. We use unique data on real estate prices in Germany covering over 32 million properties offered for sale or rent between 2008 and 2019 in combination with administrative data on wages and firm profits. Empirically, we exploit the German institutional setting with over 17,000 municipal tax changes using an event study design. The estimates suggest that a one percentage point business tax increase reduces commercial real estate prices by three percent after four years on average, while commercial rents decline by one percent. Wages decline by about one percent, profits by two percent. These results are robust to the inclusion of a large set of controls and to estimators that account for heterogeneous treatment effects. We use the reduced-form estimates to update current incidence measures and find that commercial landowners bear a significant share of the tax burden (≈ 16%) in the medium-run, while workers (≈ 10%) and residential landowners (≈ 10%) are likely to bear a smaller burden. Firm owners bear the largest share of the burden (≈ 64%).