Ota Paper 101: A Review Of The Evidence On The Incidence Of The Corporate Income Tax - William M. Gentry (Office Of Tax Analysis, Us Department Of The Treasury) Page 16
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42wage information comes from household surveys instead of being collected from manufacturing
firms. Her data have few country-year observations but do calculate wage rates for different skill
levels. Using the top corporate tax rate as her measure of the tax rate, she estimates statistically
significant elasticities of the hourly wage rate with respect to the corporate tax rate that are
roughly half as large as those reported by Hassett and Mathur.
Gravelle and Hungerford (2007) re-estimate the Hassett and Mathur specifications using
alternative methods for adjusting wages for exchange rate differences. Hassett and Mathur
convert wages for each country to US dollars using annual exchange rates; Gravelle and
Hungerford point out that nominal exchange rates do not capture differences in the relative
purchasing power within the two countries. Thus, they convert the wage variable to US dollars
either with a Purchasing Power Parity (PPP) exchange rate or an inflation-adjusted PPP exchange
rate. In specifications that use the top corporate tax rate as the dependent variable of interest,
Gravelle and Hungerford report that these alternative exchange rate conversions reduce the
estimated coefficient from -0.84 in Hassett and Mathur to -0.74 and -0.51, respectively, and the
statistically significance falls to the 90% confidence level. Alternative measures for the tax rate
lead to similar proportional declines in the estimated tax effects and the effects are no longer
statistically significant.
II.D.
Consensus and Challenges
On the whole, this trio of studies paints a consistent empirical picture of corporate tax
incidence: labor bears a large burden from the tax, possibly exceeding the revenues collected
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from the tax.
The exact magnitude of the estimated effect and whether these studies are robust
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In contrast to the consensus of these studies, an earlier empirical literature on the incidence of the corporate income
tax failed to converge on a consensus. In the 1960s and early 1970s, several studies examined aggregate time series
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