Nelly Exbrayat
email: nelly.exbrayat@univ-st-etienne.fr.

Benny Geys
email: benny.geys@bi.no

Economic Integration, Corporate Tax Incidence and Fiscal Compensation

Keywords: Tax Incidence, Fiscal Compensation, Corporate taxation, Wage bargaining, Capital mobility H22, H25, J21, J31, H32 Tax Incidence, Fiscal Compensation, Corporate taxation, Wage bargaining, Capital mobility H22, H25, J21, J31, H32

Higher corporate taxes are often argued to depress wages (a tax incidence effect), while higher wages may require compensation via lower corporate tax rates (a fiscal compensation effect). Yet, existing empirical evidence ignores that i) both effects are likely to occur simultaneously (necessitating a joint estimation approach), and ii) capital mobility might play a critical moderating role for the strength of both effects. Using a panel dataset comprising 24 OECD countries over the period 1982-2007, we address both these deficiencies. This clearly illustrates the simultaneous existence of tax incidence and fiscal compensation effects. Moreover, capital mobility (and the ensuing relative bargaining power of economic agents) has a significant influence on both the prevalence and strength of these effects.

I. Introduction

A substantial literature going back to at least [START_REF] Harberger | The Incidence of the Corporation Income Tax[END_REF] argues that corporate taxes exert a negative impact on wages as long as the capital supply is not completely inelastic (i.e. a tax incidence effect; [START_REF] Harberger | The Incidence of the Corporation Income Tax[END_REF][START_REF] Harberger | The ABC's of Corporate Tax Incidence: Insights into the Open Economy Case[END_REF]. A more recent literature suggests that the causal connection between corporate taxes and wages might well be reversed because governments could have an incentive to compensate firms for high labor costs by reducing corporate taxes [START_REF] Haufler | Unionisation triggers tax incentives to attract foreign direct investment[END_REF][START_REF] Exbrayat | The Effects of Labor Unions on International Capital Tax Competition[END_REF][START_REF] Mittermaier | Do Countries Compensate Firms for International Wage Differentials?[END_REF]. While not denying the relevance of tax incidence effects, casual observation appears to corroborate the existence of such fiscal compensation effects. For instance, the UK instituted a national minimum wage in 1998, and simultaneously introduced substantial cuts in its corporate income tax rate. The same patterni.e. a decrease in corporate taxation following an increase in the minimum wage levelalso materialized in several Canadian provinces (including British Columbia and Ontario) and the United States (where president Bush conditioned his support for a minimum wage increase in May 2007 on business tax breaks). Hence, it appears that "fiscal policies are used to compensate investors for the location disadvantages of facing high wages" (Haufler and Mittermaier, 2011, 795).

Thus far, empirical analyses of the tax-wage relation assess either corporate tax incidence on wages [START_REF] Randolph | International Burdens of the Corporate Income Tax[END_REF][START_REF] Desai | Labor and Capital Shares of the Corporate Tax Burden: International Evidence[END_REF][START_REF] Felix | Corporate Taxes and Union Wages in the United States[END_REF][START_REF] Dwenger | Sharing the Burden: Empirical Evidence on Corporate Tax Incidence[END_REF][START_REF] Arulampalam | The direct incidence of corporate income tax on wages[END_REF][START_REF] Fuest | Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany[END_REF][START_REF] Clausing | Who pays the corporate tax in a global economy?[END_REF] or fiscal compensation for higher wage costs [START_REF] Mittermaier | Do Countries Compensate Firms for International Wage Differentials?[END_REF], and ignore the potential bi-directional nature of this relation. The first contribution of this article therefore lies in simultaneously testing for both a tax incidence and a fiscal compensation effect in a dataset comprising 24 OECD countries over the period 1982-2007. Although previous studies control for reverse causality using, for instance, instrumental variables techniques, our simultaneous estimation of both relations is important since the bi-directional, negative relationship between corporate taxes and wages suggested in the theoretical literature can only be accommodated via such an approach.

Our second, and arguably more important, contribution lies in extending the existing empirical literature via the first evaluation of the moderating role of capital mobility for both tax incidence and fiscal compensation effects. With respect to the fiscal compensation effect, economic theory provides a clear prediction. As the risk of capital outflows becomes more prominent with the integration of global economies, the potential negative effects of rising wage costs (including capital outflows, or reduced inflows) strengthen with increasing capital mobility. This is likely to make rational governments more inclined to provide compensation for high wages through the corporate tax systemfor instance, by implementing compensating corporate tax discounts [START_REF] Haufler | Unionisation triggers tax incentives to attract foreign direct investment[END_REF][START_REF] Exbrayat | The Effects of Labor Unions on International Capital Tax Competition[END_REF].

With respect to the tax incidence effect, it is important to take into account the exact nature of the wage setting process. In the presence of a wage bargaining process, a so-called direct tax incidence arises because corporate taxation reduces the quasi-rent over which workers and firms can bargain. [START_REF] Arulampalam | The direct incidence of corporate income tax on wages[END_REF] and [START_REF] Fuest | Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany[END_REF] show that an improvement in the relative bargaining power of firms weakens this direct tax incidence effect (because workers capture a smaller share of the quasi-rent). Capital mobility plays no role in their models because the bargaining power and position of firms and workers are exogenous to the level of economic integration. However, as first shown by Dinopoulos and Mezzeti (1991), a credible threat to shift production abroad improves the bargaining position of the firm, and reduces the negotiated wage (see also [START_REF] Zhao | Cross-hauling, direct foreign investment and unionized oligopoly[END_REF][START_REF] Eckel | Wage bargaining and multinational firms[END_REF]. As this is particularly relevant for multinational firms that can easily shift production across borders [START_REF] Eckel | Wage bargaining and multinational firms[END_REF]), 1 we could expect direct tax incidence to increase with economic integration (or, at least, corporate internationalization). In the presence of competitive labor markets, the incidence of the corporate tax on wages is indirect and results from variations in the level of capital-to-labor invested in each country. As shown by [START_REF] Harberger | The ABC's of Corporate Tax Incidence: Insights into the Open Economy Case[END_REF], an increase in capital mobility in such a setting allows capital owners to partially escape taxation via investments in low-tax countries. This capital outflow from a high tax country strengthens indirect tax incidence by reducing the marginal productivity of labor in this country.

Overall, therefore, capital mobility and corporate internationalization could strengthen the interrelations between wages and corporate taxes (either directly or through its influence on the wage bargaining process). We test this intuition by analyzing how economic openness as well as the bargaining power of workers relative to firms influence both the tax incidence and fiscal compensation effects.

In the next section, we briefly discuss the existing theoretical and empirical literature on corporate tax incidence and fiscal compensation, and thereby highlight the potential role of capital mobility on both effects. Then, section III presents our methodological approach and main empirical results. Section IV concludes.

II. Literature Overview and Hypotheses

II.a Corporate tax incidence on wages

Corporate taxes can be passed on to workers by lowering wages. This can arise via various mechanisms depending on the time horizon and the labor market structure. The overall incidence of the corporate tax on wages can be decomposed into a direct effect in the short-1 For example, Goodyear decided to fall back on imports from subsidiaries abroad after a major strike of steelworkers in the US and Canada in 2006 in order to limit the harmful impact of these strikes on production.

run and an indirect effect in the long-run [START_REF] Arulampalam | The direct incidence of corporate income tax on wages[END_REF][START_REF] Fuest | Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany[END_REF]. The direct effect captures the incidence of the corporate tax on wages in the presence of a wage bargaining process, for given capital stock and output prices. Specifically, a rise in corporate taxation depresses wages by reducing the quasi-rent over which workers and firm can bargain.

In the long-run, however, corporate taxes also influence wages through the adjustment of the capital stock per worker or output prices (known as the indirect tax incidence effect). This arises because the corporate tax first exerts a negative influence on capital investment, which reduces the capital-to-labor ratio. This, in turn, reduces the marginal productivity of labor, and the resulting wages, in the presence of competitive labor markets.

The earliest literature regarding corporate tax incidence was devoted to indirect tax incidence in a competitive economy. In his pioneering contribution, [START_REF] Harberger | The Incidence of the Corporation Income Tax[END_REF] [START_REF] Harberger | The ABC's of Corporate Tax Incidence: Insights into the Open Economy Case[END_REF] illustrates that the burden of a corporate tax can in some cases be fully shifted onto workers.

The reason is that in an open economy, capital supply becomes elastic at the country level, which equalizes the net return to capital just as international trade equalizes the prices of tradable goods. 3 As capital will now (at least partly) move out of the country when it is taxed, the capital flows reduce (resp. increase) the capital-to-labor ratio and the resulting competitive wages in high-tax (resp. low-tax) countries. 4From an empirical perspective, a first strand of the literature building on [START_REF] Harberger | The Incidence of the Corporation Income Tax[END_REF][START_REF] Harberger | The ABC's of Corporate Tax Incidence: Insights into the Open Economy Case[END_REF] insights tries to quantify this indirect incidence of the corporate tax burden in the long run. [START_REF] Randolph | International Burdens of the Corporate Income Tax[END_REF], for instance, simulates a general equilibrium model à la [START_REF] Harberger | The ABC's of Corporate Tax Incidence: Insights into the Open Economy Case[END_REF][START_REF] Harberger | Corporation Tax Incidence: Reflections on what is Known, Unknown and Unknowable[END_REF] under the assumptions that the worldwide capital stock is fixed and the US accounts for 30% of world capital, and finds that labor bears 70% of the US corporate income tax. In the presence of capital flows impeded by imperfect substitutability of products between countries, the simulations of [START_REF] Gravelle | Does the Open Economy Assumption Really Mean That Labor Bears the Burden of a Capital Income Tax? The B[END_REF] conclude that labor bears less than 70% of the burden. However, [START_REF] Clausing | Who pays the corporate tax in a global economy?[END_REF] argues that these early analyses do not rigorously test the general equilibrium mechanism underlying indirect tax incidence, and that their findings are sensitive to a number of key economic parameters. Therefore, most recent studies rely on econometrics to test the indirect incidence of the corporate tax in open economies. For example, using data on the foreign activities of American multinational firms for a panel of more than 50 countries between 1989 and 2004, [START_REF] Desai | Labor and Capital Shares of the Corporate Tax Burden: International Evidence[END_REF] jointly estimate the degree to which owners of capital and labor share the burdens of corporate income taxes, with the restriction that the overall burden is ultimately shared between them.

The results suggest that 45 to 75 percent of the burden of corporate taxes is borne by labor.

Other cross-country studies relying on a single-equation regression (Felix, 2007;Hasset and Mathur, 2010) likewise provide evidence that increases in the corporate tax rate significantly reduce wages. By contrast, Clausing (2013) finds an ambiguous and small impact of corporate taxes on wages using a vector autoregression model.

Studies focusing on the direct incidence of the corporate tax generally rely on reduced-form regression analyses. Using data on the union-wage premium in the US, [START_REF] Felix | Corporate Taxes and Union Wages in the United States[END_REF] estimate that workers in a fully-unionized firm capture 54% of the benefits of low tax rates. [START_REF] Arulampalam | The direct incidence of corporate income tax on wages[END_REF] Using panel of data on German local tax rates linked to matched employer-employee data, they find "a full incidence, consisting of the direct and indirect effect, of 77 cents". They also illustrate that this result is mostly driven by the direct effect.

II.b Fiscal compensation for high labor costs

Recent theoretical work suggests that high (low) taxes might not only lead to low (high)

wages, but that wage levels might also influence corporate taxation. Let us again first consider a closed economy with imperfectly competitive good markets. In such a setting, higher wages can be partially passed on to consumers through higher prices, which reduces consumers' surplus [START_REF] Mauleon | Market Competition and Strike Activity[END_REF]. Even with perfectly competitive labor markets ensuring full employment, benevolent governments could then be tempted to compensate firms (via lower taxes) for high wage costs to limit the detrimental effect on consumers' surplus. Such a compensatory tax policy turns out to be even more likely in an open economy.

As the tax competition literature shows, capital mobility might lead governments to behave strategically and engage in a race-to-the bottom (in terms of corporate taxation) to protect their country from capital outflows (for a survey, see [START_REF] Wilson | Theories of Tax Competition[END_REF]; recent empirical evidence is provided in [START_REF] Devereux | Do countries compete over corporate tax rates?[END_REF][START_REF] Overesch | What drives corporate tax rates down? A reassessment of globalization, tax competition, and dynamic adjustment to shocks[END_REF]. As shown by, for instance, [START_REF] Ottaviano | Market size and tax competition[END_REF], such strategic tax setting is expected to be stronger in countries that are structurally less attractive. In this respect, production costs also matter as these are detrimental to firms' competitiveness. Hence, this gives an additional reason for offering corporate tax discounts by governments keen to limit capital outflows.

This idea was recently rationalized in partial equilibrium models of tax competition with unionized labor markets by [START_REF] Haufler | Unionisation triggers tax incentives to attract foreign direct investment[END_REF] and [START_REF] Exbrayat | The Effects of Labor Unions on International Capital Tax Competition[END_REF]. These authors analyze how wage setting influences corporate taxes through international capital flows. When investors can choose among a unionized and a non-unionized country (in which wages are relatively lower), the government of the unionized country in equilibrium sets a lower corporate tax (or a higher subsidy) to compensate firms for the higher wage caused by union power. Therefore, in an economy characterized by mobile capital and immobile labor, the labor cost exerts a negative influence on the corporate tax rate at the national level.

To the best of our knowledge, there is only one empirical analysis of such fiscal compensation effect. [START_REF] Mittermaier | Do Countries Compensate Firms for International Wage Differentials?[END_REF] use European data over the period 1982-2000 to explore the impact of relative wages (or a labor cost disadvantage with respect to other countries) on absolute levels of corporate taxation. According to their estimates, a 1$ increase in the compensation cost differential between countries triggers a cut of the statutory income tax by about 1%. Identification of the causal nature of this effect derives from an ingenious IV strategy exploiting the end of the Cold War. They do not, however, test the impact of absolute labor costs on corporate taxation, evaluate the simultaneous presence of a tax incidence effect, nor assess the mediating role of capital mobility.

II.c Hypotheses

Theoretical work suggests a bi-directional relation between corporate taxes and wages.

Moreover, empirical work has provided some substantiation for both tax incidence and fiscal compensation effects. As a direct result, it becomes important to account for this bidirectional relationship to avoid biased inferences. This leads to our first hypothesis:

H1: Tax incidence and fiscal compensation occur jointly.

As discussed above, economic theory predicts that the indirect tax incidence and fiscal compensation effects become more prominent when capital supply is more elastic. Indeed, (financial) openness of the economy limits the variation of the net-return to capital following changes in corporate tax rates. This allows the burden of corporate taxation in a given country to be distributed between capital owners (through a lower return to capital), and workers (through lower wages)causing a tax incidence effect [START_REF] Harberger | The ABC's of Corporate Tax Incidence: Insights into the Open Economy Case[END_REF].5 Moreover, capital mobility strengthens the potential negative effects of increasing wage costs, which provides governments with a stronger incentive to implement compensating corporate tax discounts [START_REF] Haufler | Unionisation triggers tax incentives to attract foreign direct investment[END_REF][START_REF] Exbrayat | The Effects of Labor Unions on International Capital Tax Competition[END_REF].

Recent theoretical work by [START_REF] Arulampalam | The direct incidence of corporate income tax on wages[END_REF] and [START_REF] Fuest | Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany[END_REF], however, brings forward an alternative view for the direct tax incidence effect. Their models suggest that the direct tax incidence effect is increasing (resp. decreasing) with the relative bargaining power of workers (resp. firms). The intuition is the following. When workers have no bargaining power, the firm reduces their wages to the reservation wage and the quasi rent created in the firm will go to the firm's owners. An increase in corporate taxes will then be fully borne by the firm because workers are at their reservation wage. When the relative bargaining power of workers rises and they capture more and more of the quasi-rent generated within the firm through higher wages, the firm can pass a larger proportion of any corporate tax increase onto them. While an interesting theoretical possibility, [START_REF] Arulampalam | The direct incidence of corporate income tax on wages[END_REF] themselves fail to substantiate this effect in their empirical analysis. Specifically, they show that the short-run elasticity of the wage rate to corporate taxes is equivalent between standalone companies and firms that are part of a multinational group (which are assumed to enjoy stronger bargaining power relative to workers as they can shift production across borders).

It should be noted, however, that [START_REF] Arulampalam | The direct incidence of corporate income tax on wages[END_REF] and [START_REF] Fuest | Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany[END_REF] consider the bargaining power and position of firms and workers as exogenous in their modelsrather than endogenous to the level of economic integration. This not only ignores that economic integration probably does affect these relative bargaining positions, but might also affect their theoretical predictions. Indeed, as first shown by Dinopoulos and Mezzeti (1991), a credible threat to shift production abroad improves the bargaining position of the firm and reduces the negotiated wage (see also [START_REF] Zhao | Cross-hauling, direct foreign investment and unionized oligopoly[END_REF][START_REF] Eckel | Wage bargaining and multinational firms[END_REF]. This result is found to hold particularly for multinational firms that can more easily shift their production abroad [START_REF] Eckel | Wage bargaining and multinational firms[END_REF]. Hence, the direct tax incidence may well be stronger in the presence of endogenous production-shifting possibilities as it improves the bargaining position of firms compared to workers [START_REF] Azémar | Country Characteristics and the Incidence of Capital Income Taxation on Wages: An Empirical Assessment[END_REF].6

H2: Capital mobility could strengthen both tax incidence and fiscal compensation effects.7

III. Empirical Analysis

III.a Methodology and Data

Studies of corporate tax incidence and fiscal compensation effects often rely on an instrumental variables approach to deal with potential endogeneity concerns. Yet, no study to date has taken supportive theoretical and empirical evidence for both effects (see above) as a cue to deal more directly with the simultaneity issue these results raise. In contrast, and using data from 24 OECD countries over a period covering up to 26 years ),8 we explicitly evaluate the bi-directional nature of the negative relationship between corporate taxes and wages using the following reduced-from two-equation model (Data definitions, summary statistics and sources are in appendix):9

TAXi,t = i + 1 WAGEi,t + 2 Xi,t + 3 Yi,t + t + i,t

(1)

WAGEi,t = i + 1 TAXi,t + 2 Xi,t + 3 Zi,t + t + i,t (2)
Our first dependent variable -TAXi,tis the top statutory corporate income tax rate in country i at time t. The calculation of TAXi,t thereby accounts for the presence and level of local profit taxes, as well as their potential deduction from the national-level corporate income tax base (this approach follows [START_REF] Devereux | Corporate Income Tax: Reforms and Tax Competition[END_REF][START_REF] Loretz | Corporate taxation in the OECD in a wider context[END_REF] [START_REF] Loretz | Corporate taxation in the OECD in a wider context[END_REF]). 11 As a robustness check, we also ran our regressions using country-specific period effects (see section III.d).

as the share of population in urban areas), trade openness (imports plus exports as a share of GDP), dependency ratio (share of under 14 and over 65 to working-age population), education (% school enrolment in tertiary education), union density (union membership as share of employment; taken from the OECD labour force statistics) and an indicator variable for membership of the European Union or its precursors. We furthermore include a number of control variables specific to either equation. For the TAX-equation, this supplementary control vector (Yi,t) is inspired by research in the vast tax competition literature [START_REF] Devereux | Do countries compete over corporate tax rates?[END_REF][START_REF] Overesch | What drives corporate tax rates down? A reassessment of globalization, tax competition, and dynamic adjustment to shocks[END_REF][START_REF] Exbrayat | Trade Integration and Corporate Income Tax Differentials[END_REF] and includes total population size (in million people), political leaning of the government (1 if left-wing, 0 otherwise), majority status of government (dummy = 1 if majority, 0 if minority) and public consumption (i.e., public sector size as a share of GDP in PPP). For the WAGE-equation, this supplementary control vector (Zi,t) includes a measure of worker's productivity (i.e., GDP per person employed in constant 1990 US$ at PPP) and the number of working days lost due to strikes and lock-outs (obtained from the International Labor Organization). 12As both equations include only a partially overlapping vector of exogenous variables, the system cannot be estimated by ordinary least squares (OLS). Instead, we rely on GLS estimation of a system of seemingly unrelated regressions (SUR) [START_REF] Dwivedi | Optimality of Least Squares in the Seemingly Unrelated Regressions Model[END_REF]. In such an approach, the vectors of supplementary control variables (i.e., Yi,t and Zi,t) can be seen as 'instruments' for the identification of the endogenous variables (i.e., TAXi,t and WAGEi,t). The validity of our inferences thus to some extent depend on the reliability of the components of Yi,t and Zi,t as instruments. Valid inferences particularly require that the elements in Yi,t only affect the tax rate (and have no direct effect on wages), while the elements in Zi,t only affect wages (and have no direct effect on the tax rate). While this appears reasonable for most elements in Yi,t and Zi,t, one might argue that left-wing governments and government expenditures (both in Yi,t) directly influence wages. Auxiliary regressions suggest that this is not the case in our sample (details upon request), allowing their usage as instruments for the tax rate in the analysis below. Nonetheless, we should point out that including both these variables in Xi,t (rather than Yi,t)and thus de facto excluding them from the instrument vectorleaves all inferences reported below unaffected (details upon request). More formal tests likewise support our instruments' validity: i.e. Anderson's canonical correlation LM test rejects the null hypothesis of weak instruments for both the wage and tax equations (p<0.001 in both cases), while a Sargan test fails to substantiate that there is an overidentification problem (p<0.10 in both cases).

III.b Baseline findings

Our baseline findingsaddressing hypothesis H1are summarized in Table 1. For comparison, and to obtain more information on the potential bias induced by ignoring the bidirectional nature of the wage-tax relation, the first four columns present results using OLS, and the final two columns contain our preferred SUR results. Note that the second set of OLS results only differs from the first set in terms of the sample employed: it matches the sample used in the SUR regressions. 13 Starting our discussion with a quick overview of the control variables in the TAX equation, we first of all observe that larger countries with a higher union density have higher statutory corporate tax rates. The former effect confirms that larger countries with a larger market can maintain higher taxes [START_REF] Ludema | Economic geography and the fiscal effects of regional integration[END_REF][START_REF] Kind | Competing for capital in a lumpy world[END_REF][START_REF] Baldwin | Agglomeration, integration and tax harmonisation[END_REF][START_REF] Exbrayat | Trade Integration and Corporate Income Tax Differentials[END_REF]. To understand the latter effect, note that the union density variable captures the direct impact of unionization on 13 Note that the SUR estimates by construction exclude all observations with missing values for any variable included in either equation. The resulting sample is also employed in the second set of OLS results. The sample size in the first set of OLS estimates is slightly larger as it only excludes observations with missing values for variables in the independently estimated TAX and WAGE equations. corporate taxes, its indirect effect being captured by the wage variable. Thus it may reflect that, for a given wage level, stronger unions can insist on a 'fairer' fiscal contribution from employers. In line with a standard tax competition argument, trade openness bears a negative relation to corporate tax rates, while the negative effect of EMU suggests that fiscal competition strengthens when countries join the European Union (thus generating downward pressure on corporate tax rates; see also Davies and Voget, 2013, and references therein).

Higher unemployment has a similar negative effect, as predicted by [START_REF] Exbrayat | The Effects of Labor Unions on International Capital Tax Competition[END_REF].

Finally, a higher dependency ratio tends to depress corporate tax rates.

Turning to the WAGE equation, we find that, in line with expectations, union density, the prevalence of strikes and worker productivity are all positively associated to the wage level.

Unemployment, on the other hand, shows a significant negative effect, presumably because wage demands are likely to be limited when unemployment rates are high. A similar negative effect is found for trade openness. The share of the population enrolled in tertiary education has a somewhat unexpected effect, but this might simply signal that higher education levels reduce the number of production workers, which reduces their (wage) bargaining power.

____________________

Table 1 about here ____________________ When we look at our key explanatory variables, Table 1 suggests that both the effect of corporate taxation on production workers' wages and the effect of these wages on corporate tax rates are robustly negative. Yet, not accounting for reverse causality in the OLS results substantially biases the point estimates towards zero. Moreover, accounting for the simultaneity of both effects substantially improves the precision with which the coefficients are estimated. Overall, our preferred SUR specification shows strong support for the simultaneous presence of both a direct tax incidence effect on wages (with the point estimate suggesting that a 1% increase in the statutory tax rate decreases wages with approximately $0.89) and a fiscal compensation effect (a $1 increase in wages is connected to a tax cut of roughly 1.02%; in line with [START_REF] Mittermaier | Do Countries Compensate Firms for International Wage Differentials?[END_REF]. This simultaneous empirical relevance of both effects is supportive of hypothesis H1.

III.c The role of international capital mobility and the relative bargaining power of agents

Table 1 follows previous work in focusing on the general relation between taxes and wages.

Below, we extend the analysis to test the ideastated in hypothesis H2that tax incidence and fiscal compensation effects could strengthen with the extent of international capital mobility. We evaluate this in two ways. First, following theoretical arguments by [START_REF] Harberger | The ABC's of Corporate Tax Incidence: Insights into the Open Economy Case[END_REF], [START_REF] Haufler | Unionisation triggers tax incentives to attract foreign direct investment[END_REF] and [START_REF] Exbrayat | The Effects of Labor Unions on International Capital Tax Competition[END_REF], we compare economies depending on the openness of their capital markets. Second, as a more indirect test, we look at the bargaining power of firms relative to workers. We specifically evaluate the role of workers' bargaining power by relying on measures of legally entrenched worker rights [START_REF] Rodrik | Democracies Pay Higher Wages[END_REF], labor mobility [START_REF] Ortega | The Effect of Income and Immigration Policies on International Migration[END_REF], and the political ideology of the ruling government (since left-wing parties tend to be more concerned with workers' rights). All these can undermine the improved relative bargaining position of firms due to economic integration. 14

Capital market integration

Economic theory predicts that a more elastic capital supply could strengthen the direct tax incidence and fiscal compensation effects [START_REF] Harberger | The ABC's of Corporate Tax Incidence: Insights into the Open Economy Case[END_REF][START_REF] Haufler | Unionisation triggers tax incentives to attract foreign direct investment[END_REF] 14 Lacking a convincing proxy for the bargaining power of governments with respect to firms (beyond size, which is clearly endogenous to taxation decisions), assessing the influence of firms' and governments' relative bargaining power in more detail is unfortunately unfeasible. [START_REF] Exbrayat | The Effects of Labor Unions on International Capital Tax Competition[END_REF]. To assess the empirical validity of this idea, we introduce a measure of (the absence of) capital mobility constraints. The Index of Capital Mobility Constraints (ICMC) from the Economic Freedom of the World database combines information about foreign investment restrictions (taken from the Global Competitiveness Report) and international capital controls (taken from the IMF) into a 10-point scale, where increasing numbers indicate higher capital mobility. Since interaction effects are notoriously difficult to specify and interpret in SUR models (as employed here), we split the samplei.e., either at the mean or median level of ICMC or at the value of ICMC creating two roughly equal samples 15and assess whether direct tax incidence and fiscal compensation are stronger in the subsample with lower constraints on capital mobility.

____________________ Table 2 about here ____________________

The results are summarized in Table 2 (suppressing control variables to preserve space). In all cases, we find that the coefficient estimates are more negative for the subsample of more open economies. This confirms hypothesis H2, according to which both the direct tax incidence and fiscal compensation effects become more prominent when capital supply is more elastic. It also complements [START_REF] Azémar | Country Characteristics and the Incidence of Capital Income Taxation on Wages: An Empirical Assessment[END_REF] findings regarding the determinants of corporate tax incidence on wages. Using BLS data for 13 OECD countries between 1980 and 2004, they indeed show that three country characteristics contribute to raise corporate tax incidence on domestic wages by facilitating capital mobility: i.e. the degree of trade openness, the generosity of depreciation allowances, and the fact the corporate income tax is sourcebased rather than residential-based. 15 The median ICMC value does not exactly split the sample in half, since we use the mean/median value of ICMC for all available observations of the index in our sample of countries and time-period, not just those in the estimation sample. Note also that though the sample size tends to become more constrained, using the subindex of restrictions on FDI flows from the same source provides qualitatively similar results (details upon request).

Firms' bargaining power relative to workers

We evaluate the importance of workers' bargaining power relative to firms via three separate measures. The first rests on the idea that workers' bargaining power is strengthened when their rights are more firmly entrenched in a country's legislation. We thereby follow [START_REF] Rodrik | Democracies Pay Higher Wages[END_REF] in employing the number of ILO's eight fundamental worker rights conventions ratified by a country. 16 Our second indicator is based on labor mobility, which is bound to reduce firms' bargaining power relative to workers. Particularly, we introduce the number of emigrants as a percentage of the total population. 17 Finally, as left-wing governments are more likely to defend workers than firms (compared to right-wing governments), we introduce a simple indicator variable for left-versus right-wing governments. As before, we use these indicators to split the sample in two groups with relatively strong and weak bargaining power for workers (with cut-offs indicated in the top row of table 3).

____________________ Table 3 about here ____________________

The results are described in Table 3. As workers' bargaining power is expected to mainly affect direct tax incidence, we concentrate our interpretation predominantly on the WAGE equation (though we obviously need to simultaneously estimate the WAGE equation to avoid biased inferences, see above). Overall, we find that the depressing effect of corporate tax 16 These conventions relate to fundamental principles and rights at work: i.e., freedom of association and the effective recognition of the right to collective bargaining; the elimination of all forms of forced or compulsory labour; the effective abolition of child labour; and the elimination of discrimination in respect of employment and occupation. Data underlying this variable were obtained from: http://www.ilo.org/dyn/normlex/en/f?p=1000:10011:3533117451708198::NO:10011:P10011_DISPLAY_B Y,P10011_CONVENTION_TYPE_CODE:2,F 17 We are grateful to Francesc Ortega for providing us the emigration data. We should note, however, that this index of international migration is arguably a very crude indicator of labour mobility, as it includes the movement of children, retired people as well as people of working age for all sectors (not just manufacturing) and excludes information about the domestic mobility of labour.

burdens on workers' wages is significantly stronger in the bottom half of Table 3. This holds for all three indicators of the strength of worker's bargaining power (i.e., less than six or less than seven ILO conventions ratified, low emigration rates and the presence of a right-wing government). Stronger worker rights, higher worker mobility or the presence of a left-wing government thus indeed improve the bargaining power of workers relative to firms, leading to a weaker depressing effect of taxes on wages. Interestingly, this result appears to invalidate theoretical predictions of [START_REF] Arulampalam | The direct incidence of corporate income tax on wages[END_REF] and [START_REF] Fuest | Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany[END_REF]. One possible explanation, as mentioned, might lie in the exogeneity of the bargaining power of firms and workers in their models, as models where such bargaining power is endogenous to the level of economic integration provide grounds for a theoretical intuition in line with our results.

Casting a brief look at the TAX equation (even though we have no strong theoretical prior there), we observe that strong workers are associated with a somewhat stronger tax compensation effect. One possible interpretation might be that a stronger position permits workers to demand measures from the governmentsuch as fiscal compensationthat allow the country to avoid capital flight and increased unemployment following strong wage demands. Interestingly, such situation might lead firms to acquiesce in strong wage demands, as long as workers simultaneously support measures compensating these wage demands in terms of firms' overall costs structure.

III.d Robustness checks

A first issue with respect to the overall robustness of our results concerns their potential sensitivity with respect to key variables such as corporate taxes or capital mobility. Therefore, we test hypotheses 1 and 2 using the Effective Average Tax Rate (EATR) and the Effective Marginal Tax Rate (EMTR) levied on machinery and buildings as alternative dependent variables (all tax data obtained from [START_REF] Loretz | Corporate taxation in the OECD in a wider context[END_REF]. As one can see from Tables 4 and5, this leaves our main findings unaffected.

____________________ Tables 4 and5 about here ____________________ Table 6 instead employs an alternative measure for the mobility of physical capital: i.e. the OECD index for FDI restrictions in the manufacturing sector (with higher values indicating more stringent restrictions). 18 Four types of measures are covered by this index: (i) foreign equity restrictions, (ii) screening and prior approval requirements, (iii) rules for key personnel, and (iv) other restrictions on the operation of foreign enterprises. The results indicate that both the tax incidence and fiscal compensation effects fail to reach statistical significance at conventional levels in the sub-sample of countries with strong restrictions ('closed' economy), but are substantively and statistically meaningful in the sub-sample of countries with low restrictions ('open' economy). This is supportive of hypothesis 2.

____________________

Table 6 about here ____________________ Second, one might worry about potential collinearity among our explanatory variables affecting our findings. Careful analysis of the pairwise correlations between our explanatory variables indicates moderately strong correlations (i.e. correlation above 0.4 in absolute terms) for four pairs of variables. 19 Importantly, excluding any of these variables from the estimation model always leaves our findings from table 1 and table 3 unaffected (in terms of sign and statistical significance at conventional levels). The stronger direct tax incidence effect in open economies observed in table 2 likewise persists. However, the stronger fiscal compensation effect in open economies severely weakens when we exclude the dependency 18 This index is available only for the years 1997, 2003 and 2006. As variation over time appears very minimal, we simply take the mean the three available observations and apply the result to all years within our sample period. 19 Those variable pairs are population size and trade openness (r= -0.539), education and real productivity (r= 0.473), the dependency ratio and urbanness (r= 0.461), and population size and union density (r= -0.446).

ratio or workers' real productivity as control variables. Nevertheless, this observation arises only when using the ICMC index as a measure of capital mobility. The result remains statistically significant when we instead use the OECD index of FDI restrictiveness in the manufacturing sector (details available upon request).

Finally, we evaluated whether our results are sensitive to our set of countries or our approach to dealing with potential time-period effects. This indicates that most findings in tables 1 through 3 are not dependent on the inclusion of any specific country. Two limited exceptions should be noted. First, removing the US from the sample leads to a statistically insignificant estimate for the direct tax incidence effect in table 1. Second, excluding Norway leads to statistically insignificant estimates of the WAGE coefficients in the TAX equations of both open and closed economies (table 2) when using the ICMC index of capital mobility.

However, both TAX and WAGE coefficients retain a negative and statistically significant effect in open economies (as expected under hypothesis H2) when using OECD index of FDI restrictiveness or ICMC sub-index based on restrictions of FDI. Such a limited number of deviations can be expected given the substantial number of statistical tests involved in this replication exercise (type II error). Moreover, excluding the US does not affect our findings in tables 2 and 3, while removing Norway does not influence the inferences from tables 1 and 3 (or those related to the fiscal compensation effect in table 2). Hence, we feel that our results are, on the whole, quite robust to the specific estimation sample employed (details available upon request).

Our results are also largely robust to using country-specific period effects rather than year effects. Specifically, we created indicator variables for the 1980s, 1990s and 2000s and interacted these with the country-level dummy variables. Adding these variables leaves our baseline findings in tables 1 and 3 qualitatively unaffected. With respect to the influence of capital mobility (table 2), our results are again robust when using the OECD index of FDI restrictiveness or the ICMC sub-index based on restrictions of FDI (though they substantially weaken when using the general ICMC measure; details available upon request).

IV. Conclusion

This article provided empirical evidence for a two-way relationship between wages and corporate taxation at the international level over the period 1982-2007. We find that: i) governments compensate firms for high labor costs through lower corporate taxation and ii)

firms pass their fiscal burden on to workers through lower wages. Crucially, both relationships are found to be significantly stronger when capital market integration is stronger.

Finally, and contrary to existing theoretical predictions, we provide evidence that corporate tax incidence on domestic wages is decreasing with the relative bargaining power of workers relative to firms. As existing models treating the bargaining power of firms and workers as exogenous cannot explain this observation, this finding calls for theoretical models of corporate tax incidence allowing the relative bargaining power of economic agents to be endogenous to economic integration (in spirit of [START_REF] Eckel | Wage bargaining and multinational firms[END_REF].

These results have important theoretical as well as practical implications. Indeed, the taxinduced capital outflow that drives the race-to-the-bottom result in the tax competition literature is challenged. Indeed, corporate tax cuts might be ineffective in preventing capital outflows once we take into account the possibility that the labor cost subsequently adjusts upwards. This would be especially the case when firms are more responsive to labor cost than to taxes. In such a situation, we could obtain a race to-the-top rather than a race-to-the-bottom in taxes if governments compete by raising taxes to improve the attractiveness of their country through a lower labor cost. A recent paper by [START_REF] Lockwood | Tax incidence, majority voting and capital market integration[END_REF] takes a first step toward this direction. They incorporate tax-shifting, heterogeneity between agents within countries and a majority rule decision-making process in a [START_REF] Zodrow | Pigou, Tiebout, Property Taxation and the Underprovision of Local Public Goods[END_REF] tax competition model. Doing so, capital mobility induces a tax incidence effect, which makes that Nash taxes are higher than in a closed economy.

In this respect, it is important to note that the existence of significant (direct) corporate tax incidence on wages also calls for a new welfare analysis regarding tax competition. Indeed, the fiscal competition literature often argues that strategic interactions are harmful for immobile workers. The intuition for this result is that governments shift part of the tax burden onto workers because their labor supply elasticity is finite [START_REF] Bucovetsky | Tax competition with two tax instruments[END_REF].

Our empirical results suggest that, depending on the tax base elasticity in the presence of corporate tax incidence, workers might be either harmed, better off or unaffected by tax competition. Thus, policy recommendations regarding tax competition need to be reconsidered by taking into account the potential ability for firms to pass their fiscal burden on to workers. 1. Mean and median FDI index are 0.0424 and 0.001, respectively. For equal-split sample cut-off for FDI index is set at 0 and yields identical results as the median FDI index.

  . Although the statutory tax rate does not include tax base effects and firms are likely to decide their investment decisions

	Both equations include controls for a full set of time-specific (t) and country-specific (i)
	fixed effects to capture unobserved heterogeneity across time and space, as well as a set of
	common control variables (Xi,t). 11 The latter includes -following earlier empirical work on
	tax incidence or fiscal compensation -the country's unemployment rate, urbanness (measured

based on the entire tax schedule (i.e., tax base and tax rate), statutory tax rates are directly observable and most easily adjusted by the government. Hence, they are the most relevant measure of corporate tax policy for our purpose.

10

Our second dependent variable -WAGEi,tis measured as the real hourly compensation cost of production workers in the manufacturing sector in US dollars, obtained from the US Bureau of Labor Statistics. It includes total hourly direct pay, employer social security contributions and labor-related taxes on payrolls or employment (for details, see

BLS, 2009)

. Like

[START_REF] Mittermaier | Do Countries Compensate Firms for International Wage Differentials?[END_REF]

, we prefer this source to several other measures of compensations costs because the BLS data have been specifically created to allow evaluations of differences in employer labor costs across countries.

10

Nevertheless, for comparison and robustness, we ran our estimations also with the Effective Average Tax Rate (EATR) and the Effective Marginal Tax Rate (EMTR) levied on machinery and buildings (see section III.d) (all tax data obtained from

Table 1 :

 1 Baseline estimation resultsThe dependent variables are, respectively, the statutory corporate income tax rate (TAX) and the real hourly compensation cost of production workers in the manufacturing sector (WAGE). The first four columns estimate both equations independently via OLS, whereas the last two columns implement a SUR approach to account for simultaneity. The second set of OLS results only differs from the first set in terms of the sample employed (i.e. it matches the sample used in the SUR regressions). The sample size in the SUR estimates is lower than the first set of OLS estimates due to the exclusion of all observations with missing values for any variable included in either equation (whereas the first set of OLS estimates only excludes observations with missing values for variables in the independently estimated equations).

		OLS		OLS		SUR
	Dep. Var.	TAX	WAGE	TAX	WAGE	TAX	WAGE
	WAGE	-0.159	-	-0.210	-	-1.024 ***	-
		(-0.95)		(-1.14)		(-4.93)
	TAX	-	-0.061	-	-0.062	-	-0.892 ***
			(-1.02)		(-1.05)		(-4.79)
	Population	0.0001	-	0.0001	-	0.00002	-
		(1.41)		(1.53)		(0.41)
	Left-wing gov.	0.489	-	0.679	-	0.021	-
		(0.90)		(1.18)		(0.15)
	Majority gov.	-1.561	-	-3.017	-	-0.147	-
		(-0.30)		(-0.53)		(-0.23)
	Gov. expenditures	-0.132	-	-0.231	-	-0.037	-
		(-0.17)		(-0.28)		(-0.24)
	EMU	-5.253 ***	-1.040	-5.612 **	-0.895	-6.098 ***	-5.477 ***
		(-2.88)	(-0.92)	(-2.82)	(-0.76)	(-5.99)	(-3.94)
	Dependency ratio	-0.404 **	0.186	-0.605 ***	0.186	-0.514 ***	-0.429 **
		(-2.19)	(1.19)	(-3.00)	(1.17)	(-5.01)	(-2.48)
	Education	-0.100	-0.020	-0.090	-0.018	-0.123 ***	-0.115 ***
		(-1.30)	(-0.49)	(-1.11)	(-0.45)	(-3.55)	(-3.21)
	Unemployment	-0.771 ***	-0.189 *	-0.635 ***	-0.196 *	-0.762 ***	-0.700 ***
		(-4.25)	(-1.69)	(-3.71)	(-1.67)	(-6.89)	(-4.78)
	Openness	-0.009	-0.043 *	-0.034	-0.043 *	-0.058 **	-0.058 **
		(-0.21)	(-1.67)	(-0.65)	(-1.64)	(-2.13)	(-2.33)
	Union Density	0.089	0.084 **	0.085	0.079 *	0.170 ***	0.157 ***
		(0.78)	(2.04)	(0.69)	(1.85)	(3.36)	(3.49)
	Urbanness	-0.289	-0.162	-0.316	-0.126	-0.395 **	-0.354 **
		(-1.00)	(-0.64)	(-0.82)	(-0.48)	(2.41)	(-2.25)
	Strikes	-	0.002	-	0.002	-	0.001
			(1.54)		(1.49)		(0.40)
	Productivity	-	0.0004 **	-	0.0004 *	-	0.0001
			(1.99)		(1.88)		(0.39)
	Year Dummies	YES	YES	YES	YES	YES	YES
	Country fixed effects	YES	YES	YES	YES	YES	YES
	N	513	472	454	454	454	454
	(uncentered) R 2	31.81	48.46	35.85	54.16	85.28	68.19
	Note: t-
	statistics, based on standard errors adjusted for country-level clustering, between brackets; ***,**, *
	indicate significance at 1%, 5% and 10% respectively.

Table 2 :

 2 Results depending on capital mobility

			Cut-off = Mean ICMC	Cut-off = Median ICMC	Equal-split sample
		Dep. Var.	TAX	WAGE	TAX	WAGE	TAX	WAGE
	'open' economy
	WAGE		-0.132	-	-0.123	-	-1.668 **	-
			(-0.37)		(-0.36)		(-2.24)
	TAX		-	-1.392 ***	-	-1.461 ***	-	-0.731 ***
				(-3.67)		(-3.53)		(-3.25)
	Year Dummies	YES	YES	YES	YES	YES	YES
	Country	fixed	YES	YES	YES	YES	YES	YES
	effects
	N		282	282	277	277	229	229
	(uncentered) R 2	91.23	62.84	91.18	57.95	81.47	81.81
	'closed' economy
	WAGE		0.883	-	0.422	-	-0.757 ***	-
			(1.06)		(0.74)		(-3.06)
	TAX		-	-0.318 ***	-	-0.355 ***	-	-0.395 **
				(-3.09)		(-3.24)		(-2.54)
	Year Dummies	YES	YES	YES	YES	YES	YES
	Country	fixed	YES	YES	YES	YES	YES	YES
	effects
	N		172	172	177	177	225	225
	(uncentered) R 2	91.99	94.75	92.48	94.44	90.98	91.60
	Note: The dependent variables are, respectively, the statutory corporate income tax rate (TAX) and the real
	hourly compensation cost of production workers in the manufacturing sector (WAGE). All models are
	based on a SUR approach to account for simultaneity. t-statistics between brackets; ***,**, * indicate
	significance at 1%, 5% and 10% respectively. All controls included as in Table 1. Mean and median
	ICMC are 5.999 and 6.4, respectively. For equal-split sample cut-off for ICMC is set at 7.599.

Table 3 :

 3 Results depending on worker's rights

			Cut-off = 6 conventions	Cut-off = 7 conventions	Cut-off = Median	Left versus right gvt.
	Dep. Var.					Emigration
			TAX	WAGE	TAX	WAGE	TAX	WAGE	TAX	WAGE
	'strong' workers
	WAGE		-0.868 ***	-	-1.397 ***	-	-1.524	-	-3.184 ***	-
			(-2.70)		(-3.15)		(-1.55)		(-4.66)
	TAX		-	-0.089	-	0.074	-	-0.084	-	-0.512 ***
				(-0.87)		(0.84)		(-0.90)		(-3.55)
	Year Dummies	YES	YES	YES	YES	YES	YES	YES	YES
	Country	fixed	YES	YES	YES	YES	YES	YES	YES	YES
	effects
	N		375	375	235	235	248	248	167	167
	(uncentered) R 2	87.57	92.76	84.60	96.40	89.57	95.58	76.19	89.39
	'weak' workers
	WAGE		-0.819	-	-0.858 ***	-	-0.626 ***	-	-0.127	-
			(-0.19)		(-2.98)		(-2.77)		(-0.24)
	TAX		-	-0.764 ***	-	-0.923 ***	-	-2.207 ***	-	-2.032 ***
				(-4.11)		(-5.24)		(-2.41)		(-5.31)
	Year Dummies	YES	YES	YES	YES	YES	YES	YES	YES
	Country	fixed	YES	YES	YES	YES	YES	YES	YES	YES
	effects
	N		79	79	219	219	206	206	164	164
	(uncentered) R 2	93.21	89.34	93.14	70.79	89.53	1.20	93.39	20.39
		Note: The dependent variables are, respectively, the statutory corporate income tax rate (TAX) and the real
		hourly compensation cost of production workers in the manufacturing sector (WAGE). All models are
		based on a SUR approach to account for simultaneity. The median emigration share in the sample is
		0.00152. t-statistics between brackets; ***,**, * indicate significance at 1%, 5% and 10% respectively. All
		controls included as in Table 1.

Table 4 :

 4 Robustness Baseline Estimation to operationalisation of TAXThe dependent variables are, respectively, the effective average or effective marginal corporate income tax rate (EATR and EMTR) and the real hourly compensation cost of production workers in the manufacturing sector (WAGE). Estimated coefficients derive from a SUR approach to account for simultaneity. tstatistics, based on standard errors adjusted for country-level clustering, between brackets; ***,**, * indicate significance at 1%, 5% and 10% respectively.

		SUR		SUR
	Dep. Var.	EATR	WAGE	EMTR	WAGE
	WAGE	-0.005 ***	-	-0.004 **	-
		(-3.09)		(-2.14)
	EATR	-	-97.798 ***	-	-
			(-4.48)
	EMTR	-	-	-	-76.074 ***
					(-4.00)
	Year Dummies	YES	YES	YES	YES
	Country fixed effects	YES	YES	YES	YES
	N	436	436	436	436
	(uncentered) R 2	86.26	71.47	81.32	72.31
	Note:

Table 5 :

 5 Robustness Capital Mobility and Worker Rights results to operationalisation of TAX The dependent variables are, respectively, the statutory corporate income tax rate (TAX) and the real hourly compensation cost of production workers in the manufacturing sector (WAGE). All models are based on a SUR approach to account for simultaneity. t-statistics between brackets; ***,**, * indicate significance at 1%, 5% and 10% respectively. All controls included as in Table1. The equal-split sample cut-off for ICMC is set at 7.599.

			ICMC Equal-split sample ICMC Equal-split sample	Cut-off = 7 conventions	Cut-off = 7 conventions
		Dep. Var.	EATR	WAGE	EMTR	WAGE	EATR	WAGE	EMTR	WAGE
			'open' economy	'open' economy	'strong' workers	'strong' workers
	WAGE		-0.009 *	-	-0.016 ***	-	-0.009 ***	-	-0.009 ***	-
			(-1.91)		(-2.68)		(-2.76)		(-2.63)
	EATR		-	-79.17 ***	-	-	-	7.333	-	-
				(-3.07)				(0.71)
	EMTR		-	-	-	-30.872 *	-	-	-	6.370
						(-1.92)				(0.65)
	Year Dummies	YES	YES	YES	YES	YES	YES	YES	YES
	Country	fixed	YES	YES	YES	YES	YES	YES	YES	YES
	effects
	N		223	223	223	223	235	235	235	235
	(uncentered) R 2	86.90	84.96	75.25	90.43	85.56	96.46	84.66	96.48
			'closed' economy	'closed' economy	'weak' workers	'weak' workers
	WAGE		0.0003	-	0.003	-	-0.014 ***	-	-0.022 ***	-
			(0.12)		(1.39)		(-4.27)		(-4.25)
	EATR		-	-37.921 **	-	-	-	-105.41 **	-	-
				(-2.11)				(-2.45)
	EMTR		-	-	-	-28.424 *	-	-	-	-53.604
						(-1.89)				(-1.36)
	Year Dummies	YES	YES	YES	YES	YES	YES	YES	YES
	Country	fixed	YES	YES	YES	YES	YES	YES	YES	YES
	effects
	N		213	213	213	213	201	201	201	201
	(uncentered) R 2	91.60	92.60	89.54	93.28	89.74	71.28	78.03	77.07
	Note:

Table 6 :

 6 Robustness capital mobility resultsThe dependent variables are, respectively, the statutory corporate income tax rate (TAX) and the real hourly compensation cost of production workers in the manufacturing sector (WAGE). All models are based on a SUR approach to account for simultaneity. t-statistics between brackets; ***,**, * indicate significance at 1%, 5% and 10% respectively. All controls included as in Table

		Cut-off = Mean FDI index	Cut-off = Median or
	Dep. Var.			equal-split FDI index
		TAX	WAGE	TAX	WAGE
	'open' economy
	WAGE	-1.607***	-	-1.288***	-
		(-4.33)		(-4.9)
	TAX	-	-0.741 ***	-	-0.533***
			(-3.94)		(-3.63)
	Year Dummies	YES	YES	YES	YES
	Country fixed effects	YES	YES	YES	YES
	N	351	351	277	277
	(uncentered) R 2	81.71	76.78	83.99	81.92
	'closed' economy
	WAGE	-1.248	-	0.218	-
		(-0.57)		(0.57)
	TAX	-	0.211	-	0.066
			(1.16)		(0.59)
	Year Dummies	YES	YES	YES	YES
	Country fixed effects	YES	YES	YES	YES
	N	103	103	176	278
	(uncentered) R 2	91.85	97.35	94.61	93.16
	Note:

The standard example taken by[START_REF] Harberger | The Incidence of the Corporation Income Tax[END_REF] is an economy where production is determined by a Cobb-Douglas function and expenditures are divided among both goods in given proportions. Under such circumstances, consumers who spend a larger share of their budget on the corporate good will suffer losses that are exactly compensated by the gains for consumers who prefer the non-corporate good. Consequently, on average, only capital owners bear the tax burden.

3 Other assumptions can be relaxed in general equilibrium models considering open economies. See[START_REF] Gravelle | Corporate tax incidence: Review of general equilibrium estimates and analysis[END_REF] for a survey of the literature.

Consumers in this set-up also bear part of the burden of the corporate tax in non-tradable sectors as prices will continue to vary in these sectors.

[START_REF] Harberger | The ABC's of Corporate Tax Incidence: Insights into the Open Economy Case[END_REF] also analyzes how economic openness on both product and capital markets shapes the incidence of corporate taxation on consumers. He shows that the burden of corporate taxation in a given country should increase prices in the corporate non-tradable sector and decrease prices in the non-corporate non-tradable sector (especially in labor-intensive activities). Economic openness on the capital and product markets should therefore also contribute to a fall in real wages in the corporate (e.g. manufacturing) sector.

Note thatArulampalam et al.'s framework (2012) also includes a production shifting possibility (see above). Yet, in their model the resulting fall-back profit is exogenous while it is endogenous to the level of economic integration in[START_REF] Zhao | Cross-hauling, direct foreign investment and unionized oligopoly[END_REF] and[START_REF] Eckel | Wage bargaining and multinational firms[END_REF].

The opposing hypotheses inferred from existing theoretical work drive our careful phrasing here, as it implies that the role of capital mobility on direct tax incidence remains an empirical question.

The sample of countries and time period analysed are both driven by data availability. The sample includes Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, Japan, Luxembourg, the Netherland, Mexico, Norway, New Zealand, Poland, Portugal, Spain, Sweden, United Kingdom, and United States. The starting point of our dataset follows from the availability of corporate tax rate data (source:[START_REF] Loretz | Corporate taxation in the OECD in a wider context[END_REF], while the endpoint is due to the lack of more recent data on some of our control variables.

Our reduced-form approach implies an exclusive focus on direct tax incidence, and leaves aside any additional indirect effects (e.g., long-run effects arising through the adjustments of input levels or output prices). Such restriction naturally follows from the fact that workers' bargaining power relative to that of firmsanalysed in section III.c belowis most closely linked to the direct incidence of corporate taxation on workers (see above).

Note that, as argued by[START_REF] Arulampalam | The direct incidence of corporate income tax on wages[END_REF], the variable for worker's productivity is critical here, as it controls for (part of) the indirect incidence of the corporate tax. This also allows interpreting our results as estimates of only the direct tax incidence effect.

Appendix: Data sources and summary statistics WAGE: Hourly Compensation cost in manufacturing in real US dollar (source: BLS). TAX: Statutory Tax Rate (source: Loretz, 2008). Population: Total population, in thousands (source: World Bank Development Indicators) Left-wing gov: Coded -1 if left, 1 if right, 0 if center (source: World Bank: Database of Political Institutions). Majority gov: Fraction of seats held by the government minus 50% (source: World Bank: Database of Political Institutions). Gov. expenditures: Government Consumption Share of PPP Converted GDP Per Capita at current prices (source: Penn World Tables). EMU: dummy = 1 if the country (or its predecessors) is member of EMU. Dependency ratio: Age dependency ratio, in % of working-age population (source: World Bank Development Indicators). Education: School enrollment, tertiary (% gross) (source: World Bank Development Indicators). Unemployment: Unemployment rate, in % (source: International Labour Organization, Labour Statistics) Dependency ratio: Age dependency ratio (% of working-age population). Openness: Trade openness (source: Penn World Tables). Union density: Union Density (source: OECD labour force statistics) Strikes: Total number of strikes and lockouts (source: International Labour Organization, Labour Statistics). Productivity: GDP per person engaged (constant 1990 US$ at PPP) (source: International Labour Organization, Labour Statistics). Urbanness: proportion of population living in urban areas (source: World Bank Development Indicators). ICMC: Index of Capital Mobility Constraints (source: Economic Freedom of the World). Workers' rights: number of ILO's eight fundamental worker rights conventions ratified by a country (source: International Labour Organization). Emigration share: Number of emigrants as a percentage of the total population (source: Ortega and Peri, 2013). FDI index: FDI Regulatory Restrictiveness Index in the manufacturing sector (source: OECD)


Ahmed Altaher
email: ahmed.altaher@gipsa-lab.grenoble-inp.fr

Stéphane Mocanu

Jean-Marc Thiriet

Experimental Evaluation of an IEC 61850-Station Bus Communication Reliability

Keywords: Monitoring, Ethernet GOOSE, ETE delay, Redundancy I

teaching and research institutions in France or abroad, or from public or private research centers.

Introduction

Modern electrical substations, i.e. electrical transmission and distribution stations, are part of smart grids. These substations follow new technological trends [1]. The IEC 61850 standard consists of 10 parts to enforce interoperability between different manufactured devices, e.g. intelligent electronic device (IED), in the substation communication systems either in station bus, bay level or process bus [START_REF]Communication networks and systems in substations[END_REF]. The standard enforces reducing of cabling complexity by using high-speed timecritical communications applying IT networking components to exchange events and states between substation devices. This standard sets a latency constraint to achieve a response time of less than four milliseconds for critical event communications, especially in the protection and automation fields [START_REF] Choi | Communication Interconnection Network Architecture and Logical Devices Application[END_REF]. This constraint is designed by many research studies providing different approaches to justify the matter of ETE latency. This paper is organized as the following: section II presents the IEC 61850 standards and GOOSE paradigm; section III provides an overview on the related work of IEC 61850 SAS communication latency calculation and analysis; section IV shows the modeling approach to understand the GOOSE mechanism; while section V introduces the GICS (GreEn-ER Grenoble Energy education and research Industrial Control Systems) platform with the experimental setup; section VI discussed the obtained results, and at the end, section VII concludes the paper.

II. IEC 61850 GOOSE event messaging

The IEC 61850 standard defines three communication application protocols which are GSE (Generic Substation Events), GOOSE and SV (Sampled Value). Among the benefits of this standard, reducing conventional wiring, high-speed ETE communication, high availability, and interoperability [START_REF]Communication networks and systems in substations[END_REF],

The SAS systems uses GOOSE publisher/subscriber mechanism to exchange status and events among IEDs in station bus and bay levels. GOOSE depends on Ethernet (IEEE 802.3) technology to embed its dataset (status and events) which encapsulated into the Ethernet frame payload. To improve communication reliability events and status are transmitted periodically within GOOSE messages. The standard sets retransmission intervals for a GOOSE message (Fig. 1), this intervals are increased until reaching message expiration TATL (time allowed to live), new events will invoke immediately a new GOOSE messages (IEC 61850-8-1). To improve reliability, message frame includes fields such as sequential number, timestamp, state and specific Ether-Type field, i.e. twooctet field, used to indicate the encapsulated protocol in the Ethernet frame payload, IEC 61850-8-1 defined protocols uses Ether-Type value of 0x88b8 (hex) for GOOSE, and Ether-Type value of 0x88b9 for GSE management services. While SV, i.e. defined in IEC 61850-9-1 and IEC 61850-9-2, uses Ether-Type value of 0x88ba. GOOSE Publisher/subscriber model is used to transmit event messages between SAS connected IEDs such as Feeder Protection, Breaker Protection and Control, station-bus level workstations, HMI monitors and etc. These messages uses a multicast address to transmit distributed datasets. Publisher will attach timestamp with increased sequential number, and also TATL field. After that transmission buffer would be used before sending the GOOSE for many subscribers via the SAS LAN. The interested subscriber will check the GOOSE message after receiving it in its buffer, in further, more checking is done at subscriber side against TATL confirming frame validity before analyzing and exhaustive processing [IEC 61850-8-1].

III. Related Work

Researchers have calculated communication latency theoretically by using Network Calculus with Algebra [START_REF] George | Performance Evaluation of Time-critical Communication Networks for Smart Grids based on IEC 61850[END_REF].

Other research works followed modeling and simulation approach by employing simulation software such as works conducted by OPNET Modeler in [START_REF] Xin | A Priority-Based Transfer Scheme Based on Information Models in Switched Ethernet For Substation Process-Level[END_REF], [START_REF] Sidhu | Modelling and Simulation for Performance Evaluation of IEC61850-Based Substation Communication Systems[END_REF], J-Sim in [START_REF]Understanding and simulating the IEC 61850 standard[END_REF], and OMNeT++ in [START_REF]5th International ICST Conference on Simulation Tools and Techniques[END_REF], while other researchers implemented a co-simulated technique to test Ethernet based IEC 61850 converter (gateway) beside legacy SAS systematic protocols to measure the communications latency [START_REF] Haffar | An extension to IEC 61850 for solving selectivity problem in electrical substations[END_REF].

IV. Modeling

In this research, modeling is done by employing a state machine charts. A model is therefore used to build and evaluate GOOSE real time communications (see Fig. 2). The main components of the model are Ethernet network, publisher and subscriber IEDs. This model and its components are simulated to provide frame delays and to estimate the network latency in a station bus level.

The first model is used to model a simple GOOSE frame transmission in a 100 Mbps station bus architecture that gave interesting results for 16 frames with an average delay of 9.96 microseconds (fig. 3).

Since the current research objective is to analyze Ethernet based GOOSE communication pattern, i.e. timecritical messages, and to evaluate end-to-end transmission delay and message priority mechanism. In particular, to monitor, diagnose and evaluate theses parameters, especially when a network redundancy exists, a simulation model scenario is developed.

This model would be extended in future to represent redundancy mechanisms and to consider GOOSE frames sizes, contents and delays.

GICS platform

This section presents the GICS platform, i.e. research and education platform, at GIPSA-Lab which is an industrial control systems platform that contains power SAS IEDs, i.e. microprocessor based physical device essentially includes logical objects and ability to communicate with other devices by standard protocols, from different vendors, process, station and bay communication networks, PLCs, protection and control devices, HMI (Human Machine Interaction) monitors and Ethernet switches with industrial features. This experimental platform is used for research studies in the field of automatic control and communications, especially for electrical power SAS systems. In particular, one of the research applications is capturing and to analyzing network communication traffic. IEC 61850based communication implementation and testing is achieved by publishing GOOSE events in our substation platform, moreover three Siemens SIPROTEC 5 IEDs (Fig. 4-a) with network port capability are configured; i.e. 7SJ82 Feeder and overcurrent protection device, 7UT82 transformer differential protection device and 6MD85 Bay controller. In addition, to accomplish IEDs communication interoperability additional devices such as protocol gateways, IEDs from different vendors are installed and configured, e.g. ABB REF 615 (Fig. 4-b), feeder protection and control relay, many computer workstations are deployed to study the interoperability among the different devices. To monitor the traffic, computer workstation is configured to capture network traffic through a physical connection attached to the network under study, furthermore, SPAN (Switch Port Analyzer) port is used to capture frames from a dedicated port in the station-bus network switch (Cisco Catalyst 10/100 Mbps with 24 ports). The captured frames is mirrored via an assigned port for more in-depth analysis. Measuring latency and bandwidth throughput is achieved by calculating time differences between captured frames in different points.

In more details the captured frames from two different nodes is performed to obtain timestamp changes between the considered protection IED and the ingress port of the switch. TAP (Test Access Point) is connected in both of nodes (Fig. 5). Real-time capturing is performed at our SAS platform to guarantee precise analyzing and measurement of delay and jitter parameters. Captured GOOSE data frames are filtered and (Fig. 6) saved in a file regarding a processing and parsing for a certain further processing, our purpose to sort and classify capture frames fields by merging the captured two-node frames and fields filtering with the required communication traffic.

VI. Results and discussion

The protection and control response in time-critical environment requires rigid delivery of status and events, thus, the mentioned constraint of ETE delay in the standard [IEC 61850-7-1] should be fulfilled. The ETE delay, including propagation delay and hardware processing latency, should be less than 4 milliseconds.

In our experiment setup GOOSE frames were used as critical-time delivery mechanism in a switching LAN with 100 Mbps allocated bandwidth. The resulted GOOSE messaging average delay is conformed and satisfied according to the standard with different frame sizes, therefore, network redundancy effect should be studied in a further step to monitor double-path messaging frames and to inspect and evaluate the time of recovery.

VII. Conclusion

In respect of the IEC 61850 standard, for critical time communication (type 1-1A), satisfied results are obtained.

Since the aim of this research is to evaluate SAS safetyrelated functions and their reliability, i.e. protective relay response. Hence that, current work will require further expansion to simulate the functional safety with the network redundancy. Perspective work, consisting of hardware network redundancy, will be implemented to study the effect of messaging repetition technique with different protocols.

T0:

  Stable retransmission, (T0): invoked event, T1: shortest transmission time, T2 and T3: times until stable retransmission. Fig.1 GOOSE Transmission Time (IEC 61850-8-1)

Fig. 2

 2 Fig.2 GOOSE publisher/subscriber model

Fig. 3 GOOSE

 3 Fig.3 GOOSE Frames delay for 16 messages

Fig. 4 -

 4 Fig. 4-a Siemens SIPROTEC 5 IEDs, 4-b ABB REF 615 IED

Fig. 5 the

 5 Fig. 5 the SharkTap, Test Access Point sniffer from MidBit technologies

Fig. 6

 6 Fig. 6 captured frames with GOOSE filtering.