Level of Education of Students Involved
Undergraduate
Faculty Sponsor
Niru Devaraj
College
College of Arts & Sciences (CAS)
Discipline(s)
Economics
Presentation Type
Poster Presentation
Symposium Date
Spring 4-24-2025
Abstract
Since the 1980s, the United States has seen income increasingly accrue to firm and capital owners. Business productivity has grown 2.7 times as much as worker pay, indicating a growing percentage of profits that go to firm owners and shareholders – those who own capital in the economy. This trend is coupled with growing income inequality: the top 1% of earners, who own 54 percent of public equity markets, have seen their share of overall income double from 10% to 20%. The United States economy has gradually shifted away from labor during this period, with the labor share of income falling to 56% in 2019, down 7% from 1980. Given businesses’ role in these phenomena, investigating the impacts of corporate taxation is relevant. Corporate taxes have nominally declined from 46% to 21%, and significantly as a percentage of GDP, from 2.6% to 1%. Naturally, questions arise regarding corporate tax cuts’ contributions to rising income inequality. This paper first examines the literature on corporate taxes’ effects on inequality and welfare. It explores potential mechanisms behind this relationship: the share of labor and capital income, firm investment response, firm behavioral response, and tax incidence theory. Using data across 24 countries from the World Inequality Database and OECD from 1994-2023, it empirically investigates the relationship between corporate taxes and income inequality, with the expectation that lower corporate taxes increase income inequality. It finally discusses where corporate taxes may fall short as a mechanism to address income inequality, and policy gaps for future research.
Recommended Citation
Obermueller, Aidan, "Corporate Taxation and Income Inequality: Implications for Labor, Capital, and the Distribution of Benefits" (2025). Symposium on Undergraduate Research and Creative Expression (SOURCE). 1446.
https://scholar.valpo.edu/cus/1446
Biographical Information about Author(s)
Aidan is a senior Economics and Spanish student at Valpo. He has studied abroad in Costa Rica and participated in the CAPS Fellows Program. He is also part of Christ College and Phi Kappa Psi Fraternity. His interest in the topic stemmed from economics papers he completed on solar energy policies' distributional effects and the benefits and drawbacks of international trade in Costa Rica. After graduation, he plans to pursue a master of public policy at the University of Chicago, and wants to work in local economic development or economic policy consulting.