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Who benefits from tax incentives? The heterogeneous wage incidence of a tax credit

Abstract : Do workers gain from lower business taxes, and why? We estimate how a large French corporate income tax credit is passed on to wages and explore the firm- and employee-level underlying mechanisms. The amount of tax credit firms get depends on their payroll share of workers paid less than a wage threshold. Exposure to the policy thus varies both across workers depending on their wage and across firms depending on their wage structure. Using exhaustive employer-employee data, we find that half of the surplus generated by the reform falls onto workers. Wage gains load on incumbents in high-skill occupations. The wage earnings of low-skill workers -- nearly all individually eligible -- do not change. This heterogeneous wage incidence is unlikely to be driven by scale effects or skill complementarities. We find that the groups of workers benefiting from wage gains are also more likely to continue working for the same firm. Further, we show that firms do not change their wage-setting behavior in response to the individual eligibility status of workers as there is no bunching in the distribution of entrants' wages. Overall, our results suggest that the wage incidence of firm taxation operates collectively through rent-sharing and benefits workers most costly to replace.
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Submitted on : Monday, March 2, 2020 - 1:51:09 PM
Last modification on : Tuesday, January 19, 2021 - 11:09:06 AM
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  • HAL Id : halshs-02495652, version 1


Clément Carbonnier, Clément Malgouyres, Loriane Py, Camille Urvoy. Who benefits from tax incentives? The heterogeneous wage incidence of a tax credit. 2020. ⟨halshs-02495652⟩



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