Corporate Taxation and the Distribution of Income
Higher corporate taxes reduce corporate business operations, replacing them with operations by noncorporate businesses that are risky and have undiversified ownership. This shift contributes to income dispersion, with effects so large that higher corporate taxes can increase income inequality even when the corporate tax burden falls entirely on capital owned disproportionately by the rich. Estimates suggest that the riskiness of U.S. noncorporate business increases by 12.3% the aggregate income of the top one percent, and that income dispersion created by a higher U.S. corporate tax rate offsets more than half of the distributional effects of reducing average returns to capital.
I thank Zachary Halberstam for outstanding research assistance, and Alan Auerbach, Steve Bond, Mihir Desai, Michael Devereux, Kathryn Dominguez, Laurence Kotlikoff, Gabriella Massenz, Hirofumi Okoshi, and seminar participants at the University of Michigan, NBER, University of Oxford, University of British Columbia, University of Montreal, and the National Tax Association, MannheimTaxation, and International Institute of Public Finance annual conferences for helpful comments on earlier drafts. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.