Wage Incidence of a Large Corporate Tax Credit: Contrasting Employee - and Firm - Level Evidence
Sciences Po LIEPP Working Paper
Paris : Laboratory for Interdisciplinary Evaluation of Public Policies
Sciences Po LIEPP Working Paper : 85
tax credit, incidence, rent sharing
The present paper sheds new light on the incidence of ﬁrm taxation by exploiting the design of a large-scale corporate income tax credit in France. The tax credit is proportional to the wage bill of workers paid below a hourly wage threshold, which induces a discontinuity in mandatory levies at the employee level. We use discontinuities at the employee level in order to estimate ﬁrm-level incidence. This turns out to be the relevant level for the effects of the policy, which would be undetectable with an estimation focused on the employee level impact of the shock. Relying on exhaustive matched employer-employee data, we ﬁnd a discrepancy between the absence of incidence at the employee level and a substantial incidence on wages at the ﬁrm level, around 50%. We ﬁnd more over that the policy in question has stark (anti)-redistributive effects. The tax cut is targeting the lowest part of wage earners, but the beneﬁts accrue to other employees inside the ﬁrm, who earn substantially higher wages on average.