The Incidence of the Corporate Income Tax is Irrelevant for its (Benefit-Based) Justification / Simon M. Naitram, Matthew C. Weinzierl.

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Naitram, Simon M

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TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w29547.Publication details: Cambridge, Mass. National Bureau of Economic Research 2021.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: Robust support for corporate income taxation is a puzzle for standard tax theory because the tax's incidence is uncertain and unreliable. We propose a resolution: if the corporate tax is seen as a benefit-based tax, its normative appeal depends on the correspondence between its incidence and that of the benefit which corporations derive from the state's activities. We show that a simple mechanism makes this correspondence exact--and the net incidence of the tax zero--when the tax base matches what we call the benefit base. As a result, the appeal of the corporate income tax is independent of incidence as conventionally understood.

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December 2021.

Robust support for corporate income taxation is a puzzle for standard tax theory because the tax's incidence is uncertain and unreliable. We propose a resolution: if the corporate tax is seen as a benefit-based tax, its normative appeal depends on the correspondence between its incidence and that of the benefit which corporations derive from the state's activities. We show that a simple mechanism makes this correspondence exact--and the net incidence of the tax zero--when the tax base matches what we call the benefit base. As a result, the appeal of the corporate income tax is independent of incidence as conventionally understood.