> Prices are set by supply and demand. Taxing corporate profits offsets the supply curve, resulting in higher prices. The data supports this. Reducing corporat

> Prices are set by supply and demand. Taxing corporate profits offsets the supply curve, resulting in higher prices. The data supports this. Reducing corporate taxes also appears to reduce what is paid to labour: > From 2010 to 2013, the Chinese central government cut the corporate income tax rate in 21 cities for service firms whose revenue from outsourcing services offshore surpassed half of their total revenue. Leveraging a regression discontinuity design with proprietary administrative data, we find that a one percentage point decrease in the statutory corporate income tax rate induces a one percentage point decrease in the firm-level labor share. Firms respond to the tax cut by increasing their physical capital and bank borrowing while keeping their employment unchanged, consistent with a capital deepening process documented in recent theoretical models. Our results suggest that falling corporate income taxes could have contributed to the global decline in the labor share. […] Labor share is defined as the share of gross value-added paid to labor and can be measured at the level of the firm or the economy. * https://www.sciencedirect.com/science/article/abs/pii/S0304387821000018 https://www.sciencedirect.com/science/article/abs/pii/S03043...