Abstract
This paper examines the effect of state ownership on the effective tax rates of Spanish companies. Using information regarding 3169 companies during the period of 2008–2014, we show that there are significant differences between the tax burdens of non-state-owned enterprises (NSOEs) and state-owned enterprises (SOEs), with the effective tax rates of private ownership companies being higher than those of state-owned firms. Company features, such as size, leverage, research and development investment, profitability, firm age, foreign operations, and auditing determine the tax burden of private ownership firms. That of state-owned companies, however, is affected only by leverage and capital intensity. For both SOEs and NSOEs, the tax burden is lower when they are taxed under the Spanish special taxation regime for small- and medium-sized enterprises. In short, company characteristics are more important in private ownership firms, in which almost all the variables considered have certain repercussions. This result may be because private ownership companies devote more resources to tax avoidance, and their fiscal strategy may determine their economic and financial structure. However, SOEs present significantly lower effective tax rates than NSOEs, probably because of the tax incentives that the law provides for them to support their sustainability.
Highlights
The empirical literature on the effective tax rate (ETR) has grown over the last few decades
The results show that political cost theory explains the relationship between size and ETR for state-owned enterprises (SOEs), whereas political power theory explains this relationship for non-state-owned enterprises (NSOEs)
For the AUDIT variable, the results showed positive and significant coefficients in five out of six estimations, which shows that companies subject to auditing bear a larger tax burden
Summary
The empirical literature on the effective tax rate (ETR) has grown over the last few decades. Research aimed at identifying the company features that explain their tax strategies In this initial stage, well described in reviews by Shackelford and Shevlin [1], Hanlon and Heitzman [2], and Graham et al [3], the company features that can explain the ETR were analyzed. Leading studies from that early stage include those by Stickney and McGee [4], Zimmerman [5], Gupta and Newberry [6], Mills et al [7], Manzon and Plesko [8], and Rego [9] This line of research has advanced, and researchers have proposed other focuses and incorporated new variables, as described in the review by Wilde and Wilson [10]. Several studies have considered management incentives [11,12,13,14,15,16], company governance activities [17,18,19,20,21,22,23,24,25], or ownership structure from various perspectives [26,27,28,29,30,31]
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