IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper

Modelling corporate tax liabilities using company accounts: a new framework

  • Ahmed, S.

This paper presents a micro-econometric approach to corporate tax modelling. Using firm level panel data of UK companies in three diverse sectors, the paper examines the impact of different variables on corporate tax liabilities of the firms. Many strong results stand out which suggest that firms reduce their tax liabilities through different channels and tax sheltering activities to maximise ‘after-tax’ profits. The evidence shows, inter alia, that not only are trading profits and capital gains important determinants of corporation tax payments but so also are their components, such as gross profit, cost of sales, expenses, and even one-off ‘exceptional items’ and ‘extraordinary items’. The results also indicate that firms’ size, organisational structure, investments, and financial and dividend policies are important factors impacting on corporate tax liabilities. Moreover, different tax reliefs and allowances are strongly associated with corporation tax payments asymmetrically. The findings have implications for microsimulation modelling, financial transparency, and corporate governance.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/cwpe0412.pdf
Download Restriction: no

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0412.

as
in new window

Length: 46
Date of creation: Jan 2004
Date of revision:
Handle: RePEc:cam:camdae:0412
Note: PE
Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Martin Feldstein, 1983. "Inflation, Tax Rules, and Investment: Some Econometric Evidence," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 243-286 National Bureau of Economic Research, Inc.
  2. Fullerton, Don & Shoven, John B. & Whalley, John, 1983. "Replacing the U.S. income tax with a progressive consumption tax : A sequenced general equilibrium approach," Journal of Public Economics, Elsevier, vol. 20(1), pages 3-23, February.
  3. Jean-Thomas Bernard & Robert J. Weiner, 1989. "Multinational Corporations, Transfer Prices, and Taxes: Evidence from the U.S. Petroleum Industry," NBER Working Papers 3013, National Bureau of Economic Research, Inc.
  4. Devereux, Michael P & Lockwood, Ben & Redoano, Michela, 2002. "Do Countries Compete Over Corporate Tax Rates?," The Warwick Economics Research Paper Series (TWERPS) 642, University of Warwick, Department of Economics.
  5. Jenkins, Glenn P & Wright, Brian D, 1975. "Taxation of Income of Multinational Corporations: The Case of the United States Petroleum Industry," The Review of Economics and Statistics, MIT Press, vol. 57(1), pages 1-11, February.
  6. Michael Devereux, 1991. "Corporation Tax Asymmetries and Investment: Evidence from UK Panel Data," Working Papers 820, Queen's University, Department of Economics.
  7. Johnson, Simon & Boone, Peter & Breach, Alasdair & Friedman, Eric, 2000. "Corporate governance in the Asian financial crisis," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 141-186.
  8. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
  9. Auerbach, Alan J., 2002. "Taxation and corporate financial policy," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 19, pages 1251-1292 Elsevier.
  10. Hines, J.R. & Rice, E.M., 1990. "Fiscal Paradise: Foreign Tax Havens And American Business," Papers 56, Princeton, Woodrow Wilson School - Discussion Paper.
  11. Marianne Bertrand & Paras Mehta & Sendhil Mullainathan, 2002. "Ferreting out Tunneling: An Application to Indian Business Groups," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 121-148.
  12. Mackie-Mason, Jeffrey K & Gordon, Roger H, 1997. " How Much Do Taxes Discourage Incorporation?," Journal of Finance, American Finance Association, vol. 52(2), pages 477-505, June.
  13. Grubert, Harry & Mutti, John, 1991. "Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 285-93, May.
  14. Boozer, Michael A., 1997. "Econometric Analysis of Panel Data Badi H. Baltagi Wiley, 1995," Econometric Theory, Cambridge University Press, vol. 13(05), pages 747-754, October.
  15. Stiglitz, Joseph E., 1973. "Taxation, corporate financial policy, and the cost of capital," Journal of Public Economics, Elsevier, vol. 2(1), pages 1-34, February.
  16. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-75, May.
  17. MacKie-Mason, Jeffrey K, 1990. " Do Taxes Affect Corporate Financing Decisions?," Journal of Finance, American Finance Association, vol. 45(5), pages 1471-93, December.
  18. Cowell, F A, 1990. "Tax Sheltering and the Cost of Evasion," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 231-43, January.
  19. Lawrence H. Summers, 1981. "Taxation and Corporate Investment: A q-Theory Approach," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 67-140.
  20. David Harris & Randall Morck & Joel Slemrod & Bernard Yeung, 1991. "Income Shifting in U.S. Multinational Corporations," NBER Working Papers 3924, National Bureau of Economic Research, Inc.
  21. James R. Hines, Jr., 1996. "Tax Policy and the Activities of Multinational Corporations," NBER Working Papers 5589, National Bureau of Economic Research, Inc.
  22. Alan J. Auerbach & Kevin Hassett, 1991. "Tax Policy and Business Fixed Investment in the United States," NBER Working Papers 3619, National Bureau of Economic Research, Inc.
  23. Poterba, James M. & Summers, Lawrence H., 1983. "Dividend taxes, corporate investment, and `Q'," Journal of Public Economics, Elsevier, vol. 22(2), pages 135-167, November.
  24. Steve Bond & Costas Meghir, 1994. "Financial constraints and company investment," Fiscal Studies, Institute for Fiscal Studies, vol. 15(2), pages 1-18, May.
  25. Bond, Stephen R & Devereux, Michael P & Gammie, Malcolm J, 1996. "Tax Reform to Promote Investment," Oxford Review of Economic Policy, Oxford University Press, vol. 12(2), pages 109-17, Summer.
  26. Donald Rousslang, 1997. "International income shifting by US multinational corporations," Applied Economics, Taylor & Francis Journals, vol. 29(7), pages 925-934.
  27. Randall Morck, 2006. "Corporations," Harvard Institute of Economic Research Working Papers 2101, Harvard - Institute of Economic Research.
  28. Assaf Razin & Joel Slemrod, 1990. "Taxation in the Global Economy," NBER Books, National Bureau of Economic Research, Inc, number razi90-1.
  29. Edwards, Jeremy, 1987. "Recent Developments in the Theory of Corporate Finance," Oxford Review of Economic Policy, Oxford University Press, vol. 3(4), pages 1-12, Winter.
  30. Jeffrey Bernstein & Anwar Shah, 1994. "Taxes and production: The case of Pakistan," International Tax and Public Finance, Springer, vol. 1(3), pages 227-245, October.
  31. Don Fullerton, 1983. "Which Effective Tax Rate?," NBER Working Papers 1123, National Bureau of Economic Research, Inc.
  32. Chirinko, Robert S., 1987. "The ineffectiveness of effective tax rates on business investment : A critique of Feldstein's Fisher-Schultz lecture," Journal of Public Economics, Elsevier, vol. 32(3), pages 369-387, April.
  33. Creedy, John, 2001. "Tax Modelling," The Economic Record, The Economic Society of Australia, vol. 77(237), pages 189-202, June.
  34. Blundell, Richard & Bond, Stephen & Devereux, Michael & Schiantarelli, Fabio, 1992. "Investment and Tobin's Q: Evidence from company panel data," Journal of Econometrics, Elsevier, vol. 51(1-2), pages 233-257.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cam:camdae:0412. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jake Dyer)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.