vol 23 no1,2023

The Impact of Corporate Income Tax on the Wage Level in Jordan

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The Impact of Corporate Income Tax on the Wage Level in Jordan

Abstract

This study aims to measure the effect of corporate income tax on wage level. Using panel data for 50 companies from various economic sectors in Jordan over the period (2012-2016). The study adopted feasible generalized least squares (FGLS) method due to peculiarities of Heteroskedasticity Problem. The main finding of the study indicated that the estimates are in line with economic theory, i.e. there is a statistically significant negative impact of the tax rate paid by the company on wage rates; the estimated parameter indicated that as the rate of tax paid in the company increased by 1%, it leads to a decrease in the wage rate in the company by 0.06%. The study also showed that there is a statistically significant effect of the value added of the company, number of workers, average product of capital and the average product of labor. Based on the results, the study recommended decision makers to re-examine the tax on corporate profits to ensure that tax burden is not transferred to the workers.

Keywords: corporate income tax, FGLS, corporate profit, wage rate, tax incidence.

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