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Habit Persistence in Effective Tax Rates: Evidence Using Australian Tax Entities

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  • Mark N. Harris

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Simon Feeny

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

Abstract

This paper uses administrative data from the Australian Tax Office, to model the effective tax rates (ETRs) of large Australian corporates. The extent to which there is any habit persistence in ETRs is also examined. The results suggest that unobserved entity heterogeneity is important in explaining ETRs. In terms of observed heterogeneity, entity size, level of leverage, capital intensity, foreign income and R&D, are all important explanators of ETRs. There is also evidence of a significant amount of habit persistence, implying that ETRs converge monotonically towards the statutory rate of corporation tax.

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Bibliographic Info

Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2000n13.

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Length: 23 pages
Date of creation: Sep 2000
Date of revision:
Handle: RePEc:iae:iaewps:wp2000n13

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  1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 277-97, April.
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  3. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers, Institute for Fiscal Studies W95/17, Institute for Fiscal Studies.
  4. Harris, M.N. & Longmire, R.J. & Matyas, L., 1996. "The Robustness of Estimators for Dynamic Panel Data Models to Misspecification," Monash Econometrics and Business Statistics Working Papers, Monash University, Department of Econometrics and Business Statistics 9/96, Monash University, Department of Econometrics and Business Statistics.
  5. Sevestre, P. & Trognon, A., 1985. "A note on autoregressive error components models," Journal of Econometrics, Elsevier, Elsevier, vol. 28(2), pages 231-245, May.
  6. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, Econometric Society, vol. 49(6), pages 1417-26, November.
  7. Don Fullerton, 1983. "Which Effective Tax Rate?," NBER Working Papers 1123, National Bureau of Economic Research, Inc.
  8. Zimmerman, Jerold L., 1983. "Taxes and firm size," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 5(1), pages 119-149, April.
  9. Gupta, Sanjay & Newberry, Kaye, 1997. "Determinants of the variability in corporate effective tax rates: Evidence from longitudinal data," Journal of Accounting and Public Policy, Elsevier, Elsevier, vol. 16(1), pages 1-34.
  10. Crepon, Bruno & Kramarz, Francis & Trognon, Alain, 1997. "Parameters of interest, nuisance parameters and orthogonality conditions An application to autoregressive error component models," Journal of Econometrics, Elsevier, Elsevier, vol. 82(1), pages 135-156.
  11. Harris, M.N. & Matyas, L., 1996. "A Comparative Analysis of Different Estimatiors for Dynamic Panel data Models," Monash Econometrics and Business Statistics Working Papers, Monash University, Department of Econometrics and Business Statistics 4/96, Monash University, Department of Econometrics and Business Statistics.
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