Changes In Corporate Tax Rates Research Articles

Statistical omissions as the stabilizing factor of net foreign assets in EU countries

In this paper, we investigate the effect of balance of payments statistical leakages (Net errors and omissions) on the external solvency of net foreign asset positions in the EU28 sample over the period 1995–2019. The Bohn (2007) error-correction reaction function approach adapted to a dynamic panel framework (pooled mean group estimator) yields evidence of a substantial improvement in the sustainability of external positions in one out of four analyzed countries (compared to only one to three countries reporting deterioration), once the extent of hypothesized trade and non-interest income misreporting is accounted for. These findings may reflect the presence of a possible association between statistical omissions and current account transactions linked to remittances flows or tax optimization behavior, as the statistical leakages are sensitive to changes in corporate tax rates and international migrant stock.

DAMPAK PERUBAHAN TARIF PAJAK BADAN TERHADAP TAX AVOIDANCE DI INDONESIA

This study aims to purpose the impact of changes in corporate tax rates to tax avoidance in Indonesia. The samples are manufacturing companies listed in Indonesia Stock Exchange which published reporting statement during 2007-2014.The sampling technique used is purposive sampling and obtained 25 companies with data processed about 200. The independent variable in this study are tax avoidance before tax rates changes (X1) and the tax avoidance after tax rates changes (X2), while the dependent variable is tax avoidance (Y). The analysis used descriptive statistical anaylsis, test Kolmogrov-Smirnov, and different t-test with used paired sample test as tool. T-test used to know the level of differences tax avoidance between before and after tax rates changes tax with apply in corporate.Results from this study indicate that there are differences in tax avoidance before and after the change in corporate tax rates. Tax avoidance as measured by the Cash ETR and Current ETR shows that after changes in corporate tax rate higher tax avoidance or tax increases. Whereas measurement by Effective Tax Rates and Total Book Tax Differences shows that there are differences of tax avoidance lesser or reduced after the change in corporate tax rates.

BTD Analysis around Corporate Tax Rate Changes

BTD Analysis around Corporate Tax Rate Changes

Multinational production and corporate taxes: A quantitative assessment

I study the welfare implications of corporate taxation in the presence of multinational production (MP) to understand the consequences of international tax competition and cooperation. I build a quantifiable general equilibrium model with trade, MP, and salient features of international corporate tax system. The model delivers structural equations that can be used to estimate the key parameters governing the response of firms' production locations to changes in corporate tax rates. Calibrating the model to data on 28 countries, I find that the U.S. corporate tax reform in 2017 increases the U.S. real income by about 1% but decreases the average real income of other countries by 0.075%. In a non-cooperative tax game, each country has strong incentives to lower its corporate tax rate on domestic firms in order to gain from firm relocation at the expense of other countries, which leads to welfare losses in participation countries. International tax cooperation can increase the real income in each participation country by about 1%.

Real Effects of State Corporate Tax Rate Changes: Evidence from Corporate Headquarters Relocations

The state tax apportionment formula used to determine state taxes is a function of the taxable income attributable to the state and state corporate tax rates. In this study, we rely on changes in state corporate income tax rates and other inducements across time and states as a quasi-natural experiment to examine the effect of state taxation on corporate headquarters (HQ) relocation. We find that changes in HQ state corporate income tax rates significantly affect the likelihood of cross-state HQ relocation. Other inducements also reduce the likelihood of relocation. The results of the cross-sectional analysis suggest that the likelihood of HQ relocation is less affected by changes in HQ state corporate tax rates when (i) the state-level factor weights used to determine income attributable to the state favor property and payroll and (ii) the firm engages in tax planning to reduce taxable income. We contribute to the literature on corporate tax planning by providing further evidence of how state taxation policies affect real corporate decisions that have significant economic consequences for the state.

The Role of Corporate Governance Mechanisms on Earnings Management for Tax Avoidance in Response to the Corporate Tax Rate Changes

The Role of Corporate Governance Mechanisms on Earnings Management for Tax Avoidance in Response to the Corporate Tax Rate Changes

Earnings management around tax rate reduction: evidence from China's 2007 corporate tax reform

Purpose– The purpose of this paper is to examine earnings management around tax rate reduction in the wake of the 2007 corporate tax reform in China.Design/methodology/approach– This paper is an empirical work using a sample of listed Chinese real estate firms.Findings– This study finds that firms managed earnings, including accrual-based earnings management and real earnings management, to decrease income in the fourth quarter of 2007, and to increase income in the first quarter of 2008. It suggests that the real estate firms were shifting income from the fourth quarter of 2007, when the statutory tax rate was 33 per cent, to the first quarter of 2008, when the statutory tax rate was 25 per cent, and therefore saved on tax payments. It also finds that corporate ownership structures, including ownership concentration and state ownership, affect earnings management. In the fourth quarter, state ownership is negatively associated with accrual-based earnings management, while ownership concentration is positively related to both accrual and real earnings management. In the first quarter, state ownership is negatively related to real earnings management.Social implications– Tax authority and policy makers might be interested in evidence on earnings management around tax rate reduction. Changes in tax rates increase the incentives to shift income, which may warrant a closer scrutiny by both outside auditors and tax auditors.Originality/value– This paper is the first study that relates to both accrual-based earnings management and real earnings management to corporate tax rate changes by showing that firms manipulate income upward in the low-tax-rate periods and downward in the high-tax-rate periods.

Earnings shocks and tax-motivated income-shifting: Evidence from European multinationals

This paper presents a new approach to estimating the existence and magnitude of tax-motivated income shifting within multinational corporations. Existing studies of income shifting use changes in corporate tax rates as a source of identification. In contrast, this paper exploits exogenous earnings shocks at the parent firm and investigates how these shocks propagate across low-tax and high-tax multinational subsidiaries. This approach is implemented using a large panel of European multinational affiliates over the period 1995–2005. The central result is that parents' positive earnings shocks are associated with a significantly positive increase in pretax profits at low-tax affiliates, relative to the effect on the pretax profits of high-tax affiliates. The result is robust to controlling for various other differences between low-tax and high-tax affiliates and for country-pair-year fixed effects. Additional tests suggest that the estimated effect is attributable primarily to the strategic use of debt across affiliates. The magnitude of income shifting estimated using this approach is substantial, but somewhat smaller than that found in the previous literature.

Earnings Shocks and Tax-Motivated Income-Shifting: Evidence from European Multinationals

This paper presents a new approach to estimating the existence and magnitude of taxmotivated income shifting within multinational corporations. Existing studies of income shifting use changes in corporate tax rates as a source of identification. In contrast, this paper exploits exogenous earnings shocks at the parent firm and investigates how these shocks propagate across low-tax and high-tax multinational subsidiaries. This approach is implemented using a large panel of European multinational affiliates over the period 1995-2005. The central result is that parents' positive earnings shocks are associated with a significantly positive increase in pretax profits at low-tax affiliates, relative to the effect on the pretax profits of high-tax affiliates. The result is robust to controlling for various other differences between low-tax and high-tax affiliates and for country-pair-year fixed effects. Additional tests suggest that the estimated effect is attributable primarily to the strategic use of debt across affiliates. The magnitude of income shifting estimated using this approach is substantial, but somewhat smaller than that found in the previous literature.

Leaning Right and Learning From the Left

There is an increased focus in comparative politics and international relations on how choices of governments are dependent on choices made by other governments. The authors argue that although the relationship between policy choices across countries is often labeled as either diffusion or competition, in many cases the theoretical mechanisms underpinning these labels are unclear. In this article, the authors build a model of social learning with a specific application to the diffusion of corporate tax reductions. The model yields predictions that are differentiable from existing models of tax competition. Specifically, the authors argue that social learning is most likely in the wake of tax policy cuts by left governments. They test the model using an existing data set of corporate tax rate changes and an author-created data set of changes in tax legislation, covering 20 Organisation for Economic Co-operation and Development countries. The authors’ empirical findings show that social learning is an important determinant of corporate tax policy making.

Effects of Corporate Tax Rate Cuts on Firm Investment and Valuation: A Micro Simulation Approach

This paper investigates the changes in firm value triggered by corporate tax rate changes for which firms have balances on deferred tax allowances and deferred tax assets. The effects on both investment to fixed/current assets are well taken care of with embedded production functions and firm investment decisions change over time through the accumulated process of retained earnings on the simulated future path. The study is based on micro-simulations, and the data covers the period 2000 to 2008. We note the tax loss carry-forward allowances and net changes in the deferred tax assets affect the equity account and our simulation results demonstrate that the changes in corporate tax rates can enhance market value of equity in most cases, while there are some cases in which the effects are neutral or even detrimental for firm values. With our result both firm financial managers and government regulators must watch very closely the current balance statement status of firm.

Effects of Tax Rate Cut on Firm Investment and Valuation: A Micro Simulation Approach

This paper investigates the changes in firm value triggered by hypothetical corporate tax rate changes in which effects on both investment to fixed assets and current assets are well taken care of. With this framework we assess the effects of government tax rate cuts. Firm investment decisions change over time through the accumulated process of retained earnings. The study is based on micro foundation simulations of all the firms listed in Japan, excluding financial firms. Our data covers the period 2000 to 2008. In order to explore the effects on valuation by corporate tax rate changes we pay particular attention to the tax loss carry-forward allowances as well as net changes in the deferred tax liabilities, which appear on the equity account and the contra account of the deferred tax assets in financial statements. Our results demonstrate that the changes in corporate tax rates can enhance market value of firm equity in most cases, while there are some cases in which the effects are neutral or even detrimental for firm values. We interpret that these different results are caused by mixed effects of current provisions that allow firms to carry their tax loss forward and the net balance of tax deferred accounts. We claim that past and future profitability or non-profitability of firms are crucial to hit the exact threshold points at which firms experience value appreciation or not, on which both firm financial managers and government regulators must watch closely.

Earnings Shocks and Tax-Motivated Income-Shifting: Evidence from European Multinationals

This paper presents a new approach to estimating the existence and magnitude of tax-motivated income shifting within multinational corporations. Existing studies of income shifting use changes in corporate tax rates as a source of identification. In contrast, this paper exploits exogenous earnings shocks at the parent firm and investigates how these shocks propagate across low-tax and high-tax multinational subsidiaries. This approach is implemented using a large panel of European multinational affiliates over the period 1995-2005. The central result is that parents’ positive earnings shocks are associated with a significantly positive increase in pretax profits at low-tax affiliates, relative to the effect on the pretax profits of high-tax affiliates. The result is robust to controlling for various other differences between low-tax and high-tax affiliates and for country-pair-year fixed effects. Additional tests suggest that the estimated effect is attributable primarily to the strategic use of debt across affiliates. The magnitude of income shifting estimated using this approach is substantial, but somewhat smaller than that found in the previous literature.

Are Your Firm's Taxes Set in Warsaw? Spatial Tax Competition in Europe

Tax competition within the EU is fiercer than in the rest of the OECD with tax rates falling rapidly. This paper analyzes heterogeneity in corporate tax rate changes between EU-15 countries as a function of the proximity to the EU-10 new member states. The average corporate tax rate in the new member states has always been considerably lower than the average in the EU-15 countries. Their entry into the EU eliminated capital barriers, allowing firms to locate in one of the new EU-10 with full access to the European Market. Our results indicate that EU-15 countries geographically closer to Central-Europe experienced more tax competition. We use a spatial regression framework to empirically test the hypothesis that distance to a low tax region affects countries' tax reaction functions.

Leaning Right and Learning from the Left: Diffusion of Corporate Tax Policy in the OECD

There is an increased focus in comparative politics and international relations on how choices of national governments are dependent on choices made by governments in other countries. We argue that while the relationship between policy choices across countries is often labeled as either diffusion or competition, in many cases the theoretical mechanisms underpinning these labels are unclear. In this paper we build a model of social learning with a specific application to the diffusion of corporate tax reductions. This model yields predictions that are differentiable from existing models of tax competition. Specifically, we argue that social learning is most likely to take place in the wake of tax policy cuts by left governments. We test this model using an existing data set of corporate tax rate changes and an author-created data set of changes in tax legislation, covering twenty OECD countries from 1980-1998.

Dynamic Capacity Choice, Dynamic Capital Structure, and Credit Risk

We investigate the joint effect of production capacity choices and capital structure decisions on corporate debt default - related yield spreads. We find that the main driver of credit spreads is the incentive of self-interested shareholders to cash out assets in an economic decline and to under-invest in an upturn. While the importance of these agency issues increases with the ease with which assets can be sold, credit risk shows a non-monotonic relationship with respect to asset liquidity. We also find that changes in corporate tax rates have larger effect on yield spreads than changes in personal tax-rates, even if the net tax shield after both of the changes is the same. The ability to adjust the capital structure considerably reduces credit risk. Finally, bankruptcy costs and debt/equity floatation costs have a relatively insignificant impact on yield spreads.

Deferred Tax Positions and Incentives for Corporate Behavior Around Corporate Tax Changes

A firm's deferred tax position can affect its incentives to lobby for or against tax reform, as well as how the firm is affected by a transition from one tax regime to another. We compile disaggregated deferred tax position data for a sample of large U.S. firms between 1993 and 2004 to analyze the incentives created by these positions and to explore how these positions might affect firm behavior before and after a pre-announced tax rate change. We find substantial heterogeneity in the size and sign of deferred tax positions. While half of our sample firms report a deferred tax position of less than three percent of assets, approximately ten percent report a position in excess of ten percent of assets. Although one might expect firms to defer the reporting of income when there is a pre-announced reduction in the corporate tax rate, we find that approximately one third of the firms in our sample would have an incentive to accelerate income in such a setting because doing so would maximize the value of their net operating loss carryforwards. We estimate that if the federal statutory corporate tax rate had been reduced from 35 to 30 percent in 2004, the resulting revaluation of deferred tax assets would have increased net income in that year by an average of 16.5 percent for firms with a net deferred tax liability, while reducing net income by an average of 11.4 percent for those firms with a net deferred tax asset. Our results suggest that the heterogeneous deferred tax positions of large U.S. corporations create substantial variation in the short-run effect of changes in corporate tax rates on reported earnings. Recognizing these divergent incentives is important for understanding the political economy of corporate tax reform.

Do taxes affect corporate debt policy? Evidence from U.S. corporate tax return data

This paper uses U.S. Statistics of Income (SOI) Corporate Income Tax Returns balance sheet data on all corporations, to estimate the effects of changes in corporate tax rates on the debt policies of firms of different sizes. Small firms face very different tax rates than larger firms, and relative tax rates have also changed frequently over time, providing substantial information to identify tax effects. The results suggest that taxes have had a strong and statistically significant effect on debt levels. For example, cutting the corporate tax rate by ten percentage points (e.g. from 46 to 36%), holding personal tax rates fixed, is forecast to reduce the fraction of assets financed with debt by around 3.5%. Since small firms normally rely much more heavily on debt finance yet face much lower tax incentives to use debt, the estimated effect of taxes would be strongly biased downwards without controls for firm size.

The Changing Role of Commercial Banks in the Municipal Securities Market

The tax treatment of commercial banks as investors in municipal securities changed dramatically with the loss of interest expense deductibility for municipal carrying costs under the Tax Reform Act of 1986. Competing theories of relative yield determination suggest that the lost deductions and recent reductions in corporate and personal tax rates should have different effects on the ratio of municipal to taxable yields. This study examines the empirical implications of these tax changes using time series for the period 1966-1992. Results suggest that the yield ratio varied inversely with relative bank purchases of municipals through mid-year 1986. After 1986, however, increased bank municipal purchases no longer directly lowered relative municipal yields. The yield ratio also varied inversely with changes in personal tax rates throughout the sample period, and increased after 1986 when banks lost 100 percent of their interest deduction for municipal carrying costs. Changes in corporate tax rates apparently play little role in shaping relative yields. Copyright 1995 by Ohio State University Press.

Empirical Evidence on the Incidence of the Corporation Income Tax

Previous articleNext article No AccessEmpirical Evidence on the Incidence of the Corporation Income TaxJohn G. Cragg, Arnold C. Harberger, and Peter MieszkowskiJohn G. Cragg Search for more articles by this author , Arnold C. Harberger Search for more articles by this author , and Peter Mieszkowski Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by Journal of Political Economy Volume 75, Number 6Dec., 1967 Article DOIhttps://doi.org/10.1086/259361 Views: 22Total views on this site Citations: 26Citations are reported from Crossref Copyright 1967 The University of ChicagoPDF download Crossref reports the following articles citing this article:Chengrui Xiao Intergovernmental revenue relations, tax enforcement and tax shifting: evidence from China, International Tax and Public Finance 27, no.11 (May 2019): 128–152.https://doi.org/10.1007/s10797-019-09546-9Charles L. 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Benton Corporation Income Tax Shifting in Investor-Owned Utilities, The American Economist 18, no.22 (Oct 1974): 63–70.https://doi.org/10.1177/056943457401800206 Peter Isard The Effectiveness of Using the Tax System to Curb Inflationary Collective Bargains: An Analysis of the Wallich-Weintraub Plan, Journal of Political Economy 81, no.33 (Oct 2015): 729–740.https://doi.org/10.1086/260068ROBERT J. GORDON SPECIFICATION BIAS AND CORPORATE TAX INCIDENCE, National Tax Journal 23, no.44 (Mar 2021): 373–378.https://doi.org/10.1086/NTJ41792219 M. Krzyzaniak , and R. A. Musgrave Corporation Tax Shifting: A Response, Journal of Political Economy 78, no.4, Part 14, Part 1 (Oct 2015): 768–773.https://doi.org/10.1086/259669HENRY AARON THE DIFFERENTIAL PRICE EFFECTS OF A VALUE-ADDED TAX, National Tax Journal 21, no.22 (Mar 2021): 162–175.https://doi.org/10.1086/NTJ41791592