Corporation Tax Incidence: Reflections on What Is Known, Unknown, and Unknowable

Abstract

This chapter examines the incidence of changes in the corporate income tax in a global economy in the context of a four-sector (tradable and non-tradable goods produced by both the corporate and the non-corporate sectors) general equilibrium model. It concludes that domestic labor often bears the full burden—or more than the full burden (overshifting)—of the corporate income tax and that a larger burden on capital understates the degree of international capital mobility as well as the degree of substitutability between domestic goods and competing imports. The chapter first considers the open economy vs. closed economy scenario for corporate income tax incidence before turning to the treatment of the corporate income tax as a “partial factor tax”.

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