An empirical analysis of the incidence of the corporate income tax in the manufacturing sector
Dye, Wilma Rae
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The corporate income tax is levied on earnings at the corporate level and shareholders pay taxes again on these earnings when they are paid out as dividends. This double taxation has been a concern of policy makers and the effect on the economy has been analyzed and discussed by researchers in many disciplines. However, the questions concerning double taxation and economic effect cannot be answered accurately without an understanding of who really bears the burden of the corporate income tax. Corporations are legal entities and as such can perform the act of paying the tax, but the burden of the tax must fall on individuals within the economy. The natural assumption would be that the owners of the corporation, shareholders, bear the burden of the corporate income tax. The possibility exists that this tax is instead passed on to consumers in the form of higher prices or to labor in the form of lower wages. Little empirical work has been done to determine the incidence of the corporate income tax, or in other words, who bears the burden of the tax.