Economists tend to think that the corporate tax burden is shared between labour and capital, but even among researchers in the field there is substantial disagreement over how much of the burden is shifted to workers. This column exploits variations in local business tax rates in Germany to identify the corporate tax incidence on wages. On average, more than half of the corporate tax burden is passed onto workers, implying a reduced overall progressivity of the German tax system.
The smaller the economy relative to the world economy, the more mobile capital is, the more the burden of corporate taxation will fall upon labour.
Germany’s smaller than the US, capital is more mobile (think EU Single Market), the burden on labour is heavier than in the US.