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The Implications of Tax Asymmetry for U.S. Corporations

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  • Cooper, Michael G.
  • Knittel, Matthew J

Abstract

This paper examines the implications of the asymmetric treatment of tax losses for U.S. corporations for 1993–2004. We find that partial refunding of tax losses reduces their real values by approximately one-half and produces modest effective tax rate differentials between taxable and non-taxable firms. However, if firms use debt financing or utilize an investment tax credit, then rate differentials can be significant. We also find that certain industries and younger firms disproportionately bear the negative consequences of partial refunding, due to either delayed realization or the inability to use tax losses to offset prior or future profits.

Suggested Citation

  • Cooper, Michael G. & Knittel, Matthew J, 2010. "The Implications of Tax Asymmetry for U.S. Corporations," National Tax Journal, National Tax Association, vol. 63(1), pages 33-61, March.
  • Handle: RePEc:ntj:journl:v:63:y:2010:i:1:p:33-61
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    References listed on IDEAS

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    1. Jack M. Mintz, 1988. "An Empirical Estimate of Corporate Tax Refundability and Effective Tax Rates," The Quarterly Journal of Economics, Oxford University Press, vol. 103(1), pages 225-231.
    2. Cooper, Michael & Knittel, Matthew, 2006. "Partial Loss Refundability: How Are Corporate Tax Losses Used?," National Tax Journal, National Tax Association, vol. 59(3), pages 651-663, September.
    3. Alan J. Auerbach, 1986. "The Dynamic Effects of Tax Law Asymmetries," Review of Economic Studies, Oxford University Press, vol. 53(2), pages 205-225.
    4. Cordes, Joseph J & Sheffrin, Steven M, 1983. " Estimating the Tax Advantage of Corporate Debt," Journal of Finance, American Finance Association, vol. 38(1), pages 95-105, March.
    5. Jason G. Cummins & Kevin A. Hassett & R. Glenn Hubbard, 1994. "A Reconsideration of Investment Behavior Using Tax Reforms as Natural Experiments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 1-74.
    6. Rosanne Altshuler & Alan J. Auerbach, 1990. "The Significance of Tax Law Asymmetries: An Empirical Investigation," The Quarterly Journal of Economics, Oxford University Press, vol. 105(1), pages 61-86.
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    Cited by:

    1. repec:spr:astaws:v:11:y:2017:i:3:d:10.1007_s11943-017-0216-6 is not listed on IDEAS
    2. Lei Gao & Leo L. Yang & Joseph H. Zhang, 2016. "Corporate patents, R&D success, and tax avoidance," Review of Quantitative Finance and Accounting, Springer, vol. 47(4), pages 1063-1096, November.
    3. Knittel, Matthew J. & Nelson, Susan C., 2011. "How Would Small Business Owners Fare Under a Business Entity Tax?," National Tax Journal, National Tax Association, vol. 64(4), pages 949-975, December.
    4. Daniel Dreßler & Michael Overesch, 2013. "Investment impact of tax loss treatment—empirical insights from a panel of multinationals," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(3), pages 513-543, June.
    5. Dominika Langenmayr & Rebecca Lester, 2013. "Taxation and corporate risk-taking," Working Papers 1316, Oxford University Centre for Business Taxation.
    6. Cronin, Julie Anne & Lin, Emily Y. & Power, Laura & Cooper, Michael, 2013. "Distributing the Corporate Income Tax: Revised U.S. Treasury Methodology," National Tax Journal, National Tax Association, vol. 66(1), pages 239-262, March.
    7. Schmitt, Noemi & Tuinstra, Jan & Westerhoff, Frank, 2017. "Side effects of nonlinear profit taxes in an evolutionary market entry model: Abrupt changes, coexisting attractors and hysteresis problems," Journal of Economic Behavior & Organization, Elsevier, vol. 135(C), pages 15-38.
    8. Masanori Orihara, "undated". "Corporate tax asymmetries and R&D: Evidence from a tax reform for business groups in Japan," Discussion papers ron273, Policy Research Institute, Ministry of Finance Japan.
    9. Ortmann, Regina & Sureth, Caren, 2014. "Can the CCCTB alleviate tax discrimination against loss-making European multinational groups?," arqus Discussion Papers in Quantitative Tax Research 165, arqus - Arbeitskreis Quantitative Steuerlehre.
    10. Masanori Orihara, "undated". "Tax loss carryforwards and corporate behavior," Discussion papers ron271, Policy Research Institute, Ministry of Finance Japan.
    11. Regina Ortmann & Caren Sureth-Sloane, 2016. "Can the CCCTB alleviate tax discrimination against loss-making European multinational groups?," Journal of Business Economics, Springer, vol. 86(5), pages 441-475, July.

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