Managing Annual Accounting Reports to Avoid State Taxes: An Analysis of Property-Casualty Insurers
AbstractWe hypothesize that, in their annual accounting reports, insurers allocate premiums and losses from multistate policies to reduce total state taxes. To test this prediction, we examine firm-level data, collected from the publicly-available statutory reports used to compute tax bases and filed with each state government. If insurers manage allocations to avoid taxes, we anticipate an inverse relation between the tax rate and the premium-to-loss ratio, which is the industry's standard measure of the price of a unit of coverage. Firm-specific prices are computed using premium and loss information from the annual regulatory reports filed with each state in which an insurer underwrites. Primary analysis is conducted on 12,573 insurer-state observations from 1993. We find the premium-to-loss ratio is decreasing in state tax rates, consistent with multistate insurers managing their annual accounting reports to shift premiums (losses) to more (less) favorably taxed states.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6590.
Date of creation: Jun 1998
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Publication status: published as Accounting Review, Vol. 74, no. 3 (1999): 371-393.
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Find related papers by JEL classification:
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
This paper has been announced in the following NEP Reports:
- NEP-PUB-1998-06-15 (Public Finance)
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