Business and institutional determinants of Effective Tax Rate in emerging economies

Abstract

This paper studies the determinants of Effective Tax Rate (ETR) in emerging economies from a joint perspective, focusing on the BRICS (Brazil, Russia, India, China and South Africa) and MINT (Mexico, Indonesia, Nigeria and Turkey) countries. We consider both traditional business characteristics (size, leverage, asset composition and profitability) and other newer ones (firm growth, earnings management and deferred tax), as well as the specific institutional factors of each country (Statutory Tax Rate, level of development, index of economic freedom, GDP growth and institutional quality). We use a sample of 7844 listed companies taken from the Compustat data base for the period 2006–2015 and we apply panel data methodology. Our results show that both business variables and institutional factors have a significant effect on the tax burden for firms in emerging countries. We consider that these findings will be of use to firms in their investment and location decisions in these countries, and to governments when drawing up fiscal policies. In our opinion, this research amounts to an important contribution to the literature because it includes new variables, both business-related and institutional, which had not been considered together in previous studies on the determinants of ETR.