Corporate Taxes and Prices

Coauthors: Scott Baker and Stephen Sun

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 the endogeneity of state tax changes as well as confounding demand shocks. We find significant effects of corporate taxes on prices with an elasticity of 0.19. The effects are largest for lower-price items and products purchased by low-income households. Approximately 41% of corporate tax incidence falls on consumers, suggesting that models used by policymakers significantly underestimate the incidence of corporate taxes on consumers.