Measuring and Characterizing the Domestic Effective Tax Rate of US Corporations

Abstract

Our study concentrates exclusively on the domestic effective tax rate (ETR), with the purpose of finding and characterizing their financial determinants. Using data on almost 5,000 US companies between fiscal years 2003 and 2010, we use regression analysis to find that the domestic ETR is affected by company size (as measured by sales), the extent to which the company is leveraged, level of fixed assets intensity, and the state of the economy. In addition, we find that domestic ETRs are also affected by the company’s level of internationality, which counterintuitively implies that the greater the company’s international activity, the less domestic taxes it pays for every dollar of US income. Both financial managers and policy makers can use our findings to reduce tax liabilities domestically, and to improve corporate tax regulations. While several attempts are made in the literature to compare ETRs of corporations that reside in different geographic locations, this is the first to characterize ETR determinants.

Citation

Lahav, Y. and Salganik-Shoshan, G. (2016), "Measuring and Characterizing the Domestic Effective Tax Rate of US Corporations", Advances in Taxation (Advances in Taxation, Vol. 23), Emerald Group Publishing Limited, Leeds, pp. 33-57. https://doi.org/10.1108/S1058-749720160000023001