Changes in corporate effective tax rates over the past 25 years

Table of Contents

1. Introduction

2. Hypotheses development

3. Sample and descriptive statistics

4. Main results of hypotheses tests

4.1. The effective tax rates of U.S. corporations have decreased over time

4.1.1. Replication of Dyreng et al.’s model

4.1.2. Extension of the sample period to 2021

4.2. The effective tax rates of multinational firms are declining more over time than those of purely domestic firms

4.2.1. Replication of Dyreng et al.’s model

4.2.2. Extension of the sample period to 2021

4.3. For multinationals the effective tax rate on foreign income declines more over time than does the effective tax rate on domestic income

4.3.1. Replication of Dyreng et al.’s model

4.3.2. Extension of the sample period to 2021

5. Determinants of effective tax rates

5.1. The effect of changes in firm characteristics

5.1.1. Replication of Dyreng et al.’s model

5.1.2. Extension of the sample period to 2021

5.2. The effect of changes in the U.S. tax system over time

5.2.1. Replication of Dyreng et al.’s model

5.2.2. Extension of the sample period to 2021

6. Summary of findings

7. Conclusion

Research Objectives and Themes

The primary objective of this thesis is to provide a comprehensive foundation for understanding the evolution of corporate effective tax rates (ETRs) among U.S. firms. By replicating and extending the empirical models established by Dyreng et al. (2016) to include the period up to 2021, the research investigates whether recent trends continue to show a decline in effective tax burdens and analyzes the impact of firm-specific characteristics and major U.S. tax legislation on these shifts.

• Empirical replication of Dyreng et al.’s (2016) model on ETR trends.
• Longitudinal analysis of effective tax rates for U.S. corporations from 1988 to 2021.
• Comparative analysis of tax burdens between multinational and purely domestic firms.
• Evaluation of the influence of firm characteristics (e.g., R&D, leverage, intangible assets) on ETR outcomes.
• Assessment of the impact of major U.S. tax legislations on corporate tax sheltering behavior.

Book Excerpt

Summary of Chapters

1. Introduction: Presents the current global debate on corporate tax avoidance and outlines the motivation for updating the empirical findings from Dyreng et al. (2016) to 2021.

2. Hypotheses development: Defines central concepts like tax planning, avoidance, and evasion, and establishes the three main research hypotheses regarding U.S. corporate tax trends.

3. Sample and descriptive statistics: Details the methodology for data collection via Compustat and explains the filtering processes and variables used in the linear regression approach.

4. Main results of hypotheses tests: Tests empirical hypotheses regarding the downward trend of ETRs over time across various firm types and compares new results with the original Dyreng et al. findings.

5. Determinants of effective tax rates: Analyzes how firm characteristics and specific U.S. tax legislative changes have contributed to the observed fluctuations in ETRs.

6. Summary of findings: Consolidates the empirical evidence and confirms that a downward trend in ETRs persists, though individual factors are noted to vary over the extended sample period.

7. Conclusion: Summarizes the key insights, reinforcing that U.S. companies continue to enjoy ETRs significantly lower than statutory rates despite ongoing efforts to curb tax avoidance.

Keywords

Corporate taxation, effective tax rates, tax avoidance, tax planning, U.S. firms, multinationals, domestic firms, fiscal policy, Dyreng et al., longitudinal analysis, tax legislation, profit shifting, Compustat, tax burdens, corporate finance.

Frequently Asked Questions

What is the core focus of this thesis?

The thesis investigates trends in corporate effective tax rates (ETRs) for U.S. firms, analyzing how these rates have evolved over the past 25 years through an empirical replication and extension of Dyreng et al.’s (2016) study.

What are the primary themes discussed?

The work covers corporate tax avoidance practices, the comparison between multinational and domestic firms, the impact of firm-specific characteristics, and the role of shifting U.S. tax legislation on tax obligations.

What is the primary goal of the research?

The primary goal is to provide a solid evidence-based foundation regarding U.S. corporate tax trends by extending the analysis period up to 2021 to provide modern insights into how ETRs have responded to changing economic landscapes.

Which scientific methods are employed?

The research utilizes simple and multiple linear regression models based on an ordinary least squares (OLS) approach. It also incorporates industry-level clustering and fixed effects to ensure the robustness of the statistical analysis.

What does the main body of the work address?

The main body systematically tests hypotheses regarding declining ETRs, evaluates whether multinational firms face different tax burdens compared to domestic counterparts, and decomposes the determinants of these tax variances using regression models.

Which keywords best characterize the research?

The research is best characterized by its focus on corporate effective tax rates, profit shifting, tax avoidance strategies, longitudinal data analysis, and the quantitative assessment of U.S. tax policy impacts.

How does this study differ from the original 2016 paper by Dyreng et al.?

While this study replicates the original methodology, it extends the analysis period from 2012 to 2021, providing updated context on how recent legislative shifts and the pandemic-era economic environment have influenced corporate tax behavior.

What is the finding regarding the tax burdens of domestic versus multinational firms?

Contrary to the assumption that multinationals always have tax advantages, the analysis indicates that purely domestic firms often face lower effective tax rates on average than their multinational peers.

How have tax legislations specifically affected corporate ETRs?

The analysis demonstrates that major U.S. tax legislations, such as the American Jobs Creation Act or various bonus depreciation rules, have generally acted to accelerate the observed downward trend in ETRs rather than curbing tax avoidance.