taxable income by the foreign corporate taxes paid by U.S. multinational corporations as
reported to the IRS. Thus, the average tax rate includes deductions, credits, tax avoidance
activity, and any differences between the U.S. definition of taxable income and the foreign
country definition. Table 6 uses the specification found in Table 5 and replaces the marginal
corporate tax rate with the average corporate tax rate.
In Table 6, the interaction term between corporate tax rates and openness is no longer
significant, as expected. In addition, Figure 3 shows that the difference between the marginal and
average tax rate is positively correlated with openness. This is another indication that
corporations may more actively avoid taxes in more open economies. The average corporate tax
rate has a negative impact on annual gross wages, and the magnitude of this effect is similar to
the effects using the marginal corporate tax rate. Results in Table 6 are noticeably more
statistically significant, which may be an indication that the average tax rate is a more precise
measure of the actual corporate tax rate.
4.3 By Skill-Level
The results so far have shown that labor bears at least some burden of the corporate tax.
The next logical step is to ask: how is the burden divided among different types of labor? In
Section 2, the capital-skill complementarity hypothesis suggested that the burden of the
corporate tax should fall most heavily on high-skill labor. Table 7 gives the results of regressing
annual gross wage on corporate tax rates, openness and their interaction separately for each level
of skill. The coefficients on these three variables are notably consistent between middle-skill and
high-skill labor. The results in Table 7 do not lend support to the hypothesis that changes to the
corporate tax rate have a larger impact on high-skill labor. In fact, a one percentage point
18