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Exploring the role Delaware plays as a domestic tax haven

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  • Dyreng, Scott D.
  • Lindsey, Bradley P.
  • Thornock, Jacob R.
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    Abstract

    We examine whether Delaware is a domestic tax haven. We find that taxes play an economically important role in determining whether U.S. firms locate subsidiaries in Delaware and that a Delaware-based state tax avoidance strategy lowers state effective tax rates by between 0.7 and 1.1 percentage points, on average. The tax savings represent a 15–24% decrease in the state income tax burden and translate to an increase in net income of 1.04–1.47%. However, we find that the tax benefits of Delaware tax strategies are diminishing over time in response to initiatives by state governments to limit multistate tax avoidance.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 108 (2013)
    Issue (Month): 3 ()
    Pages: 751-772

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    Handle: RePEc:eee:jfinec:v:108:y:2013:i:3:p:751-772

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Delaware; Tax haven; Corporate governance; Corporate tax avoidance;

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    13. Lucian Bebchuk & Alma Cohen & Allen Ferrell, 2002. "Does the Evidence Favor State Competition in Corporate Law?," NBER Working Papers 9380, National Bureau of Economic Research, Inc.
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