No. 15: Do consumers pay the corporate tax?

Abstract

Using granular gas price data and rich variation in corporate tax rates, we find that corporate taxes lead to higher consumer prices, especially when firms have limited access to tax avoidance opportunities or tax shields and face stricter tax enforcement. This effect is rooted in the adverse effect of taxes on capital investment and is stronger when consumer demand is less elastic. Our results suggest that tax policies that increase statutory tax rates or combat tax avoidance may have unintended consequences for consumers through higher prices.