Seminarium: Thomas Cornelissen, Essex

Abstract: Leveraging linked employer-employee data covering the near universe of German establishments and workers from 1999 to 2014, we show that business tax increases reduce local capital, employment, and wages. We uncover a novel indirect channel: tax increases disrupt upward job mobility by inducing sharper employment and wage cuts in high-paying, capital-intensive firms—the ones workers aspire to join. Consequently, tax increases slow between-firm individual wage growth, particularly for young and low-wage workers at the bottom of the job ladder. These findings highlight how business taxation can hinder job mobility and generate labor market disruptions similar to those seen in recessions.