Corporate Taxes and Retail Prices

Scott R. Baker, Stephen Teng Sun, Constantine Yannelis

NBER Working Paper No. 27058
Issued in April 2020
NBER Program(s):Corporate Finance, Law and Economics, Labor Studies, Public Economics, Productivity, Innovation, and Entrepreneurship

We study the impact of corporate taxes on barcode-level product prices using linked survey and administrative data. Our empirical strategy exploits the dichotomy between the location of production and the location of sales, providing estimates free from confounding demand shocks. We find significant effects of corporate taxes on prices with a net-of-tax elasticity of 0.17. The effects are larger for lower-price items and products purchased by low-income households and weaker for high-leverage firms. Approximately 31% of corporate tax incidence falls on consumers, suggesting that models used by policymakers significantly underestimate the incidence of corporate taxes on consumers.

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Acknowledgments

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Document Object Identifier (DOI): 10.3386/w27058