Do Wages Rise when Corporate Taxes Fall? - Evidence from Germany’s Tax Reform 2000

We contribute to the empirical literature on the effective incidence of corporate income taxation by using the German Business Tax Reform of the year 2000 (GBTR 2000) as a natural experiment. Its effect on wages in the manufacturing sector is identified by means of a difference-in-differences analysis that uses French fi rms as comparison group. We provide evidence that GBTR 2000 led to a significant and sizeable wage effect. For 2001, the first year after GBTR 2000 took eff ect, we estimate a short-run effect that implies a wage increase of 7.9 percent. Due to the dynamic nature of the empirical model used, the incidence effect grows gradually over time during the evaluation period.