A Study on the Effect of Corporate Income Tax Cut on Income Distribution

This paper aims to analyze the effect of corporate tax cut on income distribution in imperfectly competitive product markets and imperfectly information capital markets using Korean corporate panel data from 1999 to 2022. The main empirical results are as follows. The estimate shows that corporate income tax cut reduces the labor share and capital cost share of income and increases the profit share by factor substitution effect and output effect, financial effect from reducing debt financing. The estimate of value-added output effect of corporate tax cut was significant in unlisted companies that have difficulty in taking advantage of profitable investment opportunities with financial constraints in the capital market. On the other hand, the estimate of output effect was insignificant in listed companies without financial constraints. In listed companies without financial constraints, the profit share of income increased by the factor substitution effect and financial effect of corporate tax cut. In unlisted companies with financial constraint, corporate tax cut worsens income distribution but increases economic welfare. In listed companies without financial constraint, corporate tax cut worsens income distribution without increasing economic welfare.