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Using Tax Return Data to Simulate Corporate Marginal Tax Rates

  • John R. Graham
  • Lillian F. Mills

We document that simulated corporate marginal tax rates based on financial statement data (Shevlin 1990 and Graham 1996a) are highly correlated with simulated rates based on corporate tax return data. We provide algorithms that can be used to estimate the book or tax simulated rates when they are not available. We find that the simulated book marginal tax rate does a better job of explaining financial statement debt ratios than does the analogous tax return variable and discuss how the book simulated rate is likely to be an appropriate measure in settings with global, long-term considerations.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13709.

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Date of creation: Dec 2007
Date of revision:
Publication status: published as Using tax return data to simulate corporate marginal tax rates Author(s): Graham J R, Mills L F Journal: Journal of Accounting & Economics, Dec 2008, Volume: 46 Issue: 2 pp.366-388 (23 pages)
Handle: RePEc:nbr:nberwo:13709
Note: CF PE
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  1. John R. Graham & Mark H. Lang & Douglas A. Shackelford, 2002. "Employee Stock Options, Corporate Taxes and Debt Policy," NBER Working Papers 9289, National Bureau of Economic Research, Inc.
  2. Graham, John R., 1999. "Do personal taxes affect corporate financing decisions?," Journal of Public Economics, Elsevier, vol. 73(2), pages 147-185, August.
  3. Mihir A. Desai & Dhammika Dharmapala, 2004. "Corporate Tax Avoidance and High Powered Incentives," Working papers 2004-09, University of Connecticut, Department of Economics.
  4. John R. Graham, 2003. "Taxes and Corporate Finance: A Review," Review of Financial Studies, Society for Financial Studies, vol. 16(4), pages 1075-1129.
  5. Plesko, George & Mills, Lillian, 2003. "Bridging the Reporting Gap: A Proposal for More Informative Reconciling of Book and Tax Income," Working papers 4289-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  6. Hanlon, Michelle & Laplante, Stacie Kelley & Shevlin, Terry, 2005. "Evidence for the Possible Information Loss of Conforming Book Income and Taxable Income," Journal of Law and Economics, University of Chicago Press, vol. 48(2), pages 407-42, October.
  7. Graham, John R., 1996. "Debt and the marginal tax rate," Journal of Financial Economics, Elsevier, vol. 41(1), pages 41-73, May.
  8. Plesko, George A., 2003. "An evaluation of alternative measures of corporate tax rates," Journal of Accounting and Economics, Elsevier, vol. 35(2), pages 201-226, June.
  9. Graham, John R., 1996. "Proxies for the corporate marginal tax rate," Journal of Financial Economics, Elsevier, vol. 42(2), pages 187-221, October.
  10. Collins, Daniel W. & Maydew, Edward L. & Weiss, Ira S., 1997. "Changes in the value-relevance of earnings and book values over the past forty years," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 39-67, December.
  11. John R. Graham & Michael L. Lemmon & James S. Schallheim, 1998. "Debt, Leases, Taxes, and the Endogeneity of Corporate Tax Status," Journal of Finance, American Finance Association, vol. 53(1), pages 131-162, 02.
  12. Dechow, Patricia M., 1994. "Accounting earnings and cash flows as measures of firm performance : The role of accounting accruals," Journal of Accounting and Economics, Elsevier, vol. 18(1), pages 3-42, July.
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