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A Dynamic Panel Analysis of the Profitability of Australian Tax Entities

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Author Info
Simon Feeny (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
Mark N. Harris (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne and Central European University, Budapest, Hungary)
Joanne Loundes (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

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Abstract

This paper investigates the determinants of profitability of Australian tax entities over the period 1993/94 to 1996/97 for each of 91 three-digit ANZSIC industries. The theoretical model is based on that of Cowling and Waterson (1976). However, it is augmented by the inclusion of lagged profitability to allow for habit persistence in entity profitability. The so-called operational Wansbeek-Bekker estimator is used to control for endogeneity of this lagged dependent variable, whilst simultaneously controlling for observed and unobserved entity heterogeneity. Aggregate results suggest that profitability in the previous year, entity capital intensity, and barriers to entry have the expected positive association with current profitability measured by the price-cost margin. Entity market share-and to a lesser extent concentration-are found to have a U shaped relationship with profitability.

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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 wp2000n22.

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Length: 23 pages
Date of creation: Sep 2000
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Handle: RePEc:iae:iaewps:wp2000n22

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Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
F18 - International Economics - - Trade - - - Trade and Environment

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  1. Cowling, Keith & Waterson, Michael, 1976. "Price-Cost Margins and Market Structure," Economica, London School of Economics and Political Science, vol. 43(171), pages 267-74, August. [Downloadable!] (restricted)
  2. Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1986. "Business Cycles and the Relationship Between Concentration and Price-Cost Margins," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 1-17, Spring. [Downloadable!] (restricted)
  3. 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 9/96, Monash University, Department of Econometrics and Business Statistics.
    Other versions:
  4. Dixon, Bruce L & Garcia, Philip & Anderson, Margot, 1987. "Usefulness of Pretests for Estimating Underlying Technologies Using Dual Profit Functions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 623-33, October. [Downloadable!] (restricted)
  5. Demsetz, Harold, 1982. "Barriers to Entry," American Economic Review, American Economic Association, vol. 72(1), pages 47-57, March. [Downloadable!] (restricted)
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  6. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January. [Downloadable!] (restricted)
  7. Shepherd, William G, 1972. "The Elements of Market Structure," The Review of Economics and Statistics, MIT Press, vol. 54(1), pages 25-37, February. [Downloadable!] (restricted)
  8. McDonald, James Ted, 1999. "The Determinants of Firm Profitability in Australian Manufacturing," The Economic Record, The Economic Society of Australia, vol. 75(229), pages 115-26, June.
  9. Domowitz, Ian & Hubbard, R Glenn & Petersen, Bruce C, 1986. "The Intertemporal Stability of the Concentration-Margins Relationship," Journal of Industrial Economics, Blackwell Publishing, vol. 35(1), pages 13-34, September. [Downloadable!] (restricted)
  10. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November. [Downloadable!] (restricted)
  11. Levy, David, 1987. "The speed of the invisible hand," International Journal of Industrial Organization, Elsevier, vol. 5(1), pages 79-92, March. [Downloadable!] (restricted)
  12. Ravenscraft, David J, 1983. "Structure-Profit Relationships at the Line of Business and Industry Level," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 22-31, February. [Downloadable!] (restricted)
  13. Cheng Hsiao, 1985. "Benefits and limitations of panel data," Econometric Reviews, Taylor and Francis Journals, vol. 4(1), pages 121-174. [Downloadable!] (restricted)
  14. Harris, M.N. & Matyas, L., 1996. "A Comparative Analysis of Different Estimatiors for Dynamic Panel data Models," Monash Econometrics and Business Statistics Working Papers 4/96, Monash University, Department of Econometrics and Business Statistics.
  15. Simon Feeny, 2000. "Determinants of Profitability: An Empirical Investigation Using Australian Tax Entities," Melbourne Institute Working Paper Series wp2000n01, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne. [Downloadable!]
  16. Nerlove, Marc, 1971. "Further Evidence on the Estimation of Dynamic Economic Relations from a Time Series of Cross Sections," Econometrica, Econometric Society, vol. 39(2), pages 359-82, March.
    Other versions:
  17. Liebowitz, S J, 1982. "What Do Census Price-Cost Margins Measure?," Journal of Law & Economics, University of Chicago Press, vol. 25(2), pages 231-46, October.
  18. Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law & Economics, University of Chicago Press, vol. 16(1), pages 1-9, April.
  19. Harris, Mark N & Matyas, Laszlo, 2000. "Performance of the Operational Wansbeek-Bekker Estimator for Dynamic Panel Data Models," Applied Economics Letters, Taylor and Francis Journals, vol. 7(3), pages 149-53, March. [Downloadable!] (restricted)
  20. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January. [Downloadable!] (restricted)
  21. Wansbeek, Tom & Bekker, Paul, 1996. "On IV, GMM and ML in a dynamic panel data model," Economics Letters, Elsevier, vol. 51(2), pages 145-152, May. [Downloadable!] (restricted)
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