Corporate income tax reform : the neglected issue of tax incidence

The 'double taxation' of corporate income is often used as an argument in support of the integration of company and shareholder taxes, as occurred with the introduction of tax imputation in 1987 in Australia. These arguments are based, often implicitly, on the premise that the economic incidence of company taxes falls on shareholders receiving dividend income. However, a review of the available theoretical and empirical literature fails to provide an unambiguous answer to the corporate income tax incidence question. Empirical results presented in this paper suggest the existence of significant forward shifting of the tax on to consumers though higher prices in the case of Australian manufacturing corporations. A more informed discussion of tax reform must therefore consider more carefully the implications arising from the likely existence of significant forward shifting of the corporate income tax.