This generates a previously unexplored channel through which corporate taxes can affect wages. Companies operating in imperfect competition may bargain over the proportion of quasi-rents paid out in wages. We introduce into the bargain a standard tax on domestic corporate income, which is levied on profit net of wages and an allowance for capital expenditure. We refer to the impact of the tax through the wage bargain itself–conditional on value added–as a direct effect, which reduces the size of the quasi-rent available to bargain over. Our model specification enables us to identify this effect empirically at the level of an individual firm. We distinguish this from indirect effects of the tax, which can arise through two channels. First, there may be an effect of a change in the tax liability on the output price, conditionalon capital and labour. Second, a change in tax may affect the incentive to investand hence the capital stock, and indirectly the labour force. Both of these may affect the pre-tax level of value added. The second effect determines the size of the deadweight costarising from distortions to the behaviour of the company as a result of the tax