IDEAS home Printed from https://ideas.repec.org/p/nzt/nztwps/13-29.html
   My bibliography  Save this paper

Estimating Firm-Level Effective Marginal Tax Rates and the User Cost of Capital in New Zealand

Author

Listed:
  • Richard Fabling
  • Norman Gemmell
  • Richard Kneller
  • Lynda Sanderson

    (The Treasury)

Abstract

Effective marginal tax rates (EMTRs) can be very different from the statutory rate and vary across firms, reflecting such factors as the extent and nature of taxable deductions (losses, depreciation), asset and ownership structures, and debt/equity financing. We estimate firm-specific EMTRs and related user cost of capital (UCC) measures allowing for shareholder-level taxation using data for 1999/2000-2010/11 from the Longitudinal Business Database. Examining distributions of various UCC measures we find substantial firm-level heterogeneity, systematic changes as a result of tax reforms between 2004 and 2012, and systematic differences between foreign-owned and domestically-owned firms. Choices among alternative UCC measures make a difference to interpretations.

Suggested Citation

  • Richard Fabling & Norman Gemmell & Richard Kneller & Lynda Sanderson, 2013. "Estimating Firm-Level Effective Marginal Tax Rates and the User Cost of Capital in New Zealand," Treasury Working Paper Series 13/29, New Zealand Treasury.
    • Handle: RePEc:nzt:nztwps:13/29
    as

    Download full text from publisher

    File URL: https://treasury.govt.nz/sites/default/files/2014-11/twp13-29v2.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Devereux, Michael P & Griffith, Rachel, 2003. "Evaluating Tax Policy for Location Decisions," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(2), pages 107-126, March.
    2. Auerbach, Alan J, 1983. "Taxation, Corporate Financial Policy and the Cost of Capital," Journal of Economic Literature, American Economic Association, vol. 21(3), pages 905-940, September.
    3. Chad Syverson, 2011. "What Determines Productivity?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 326-365, June.
    4. Peter Egger & Simon Loretz & Michael Pfaffermayr & Hannes Winner, 2009. "Firm-specific forward-looking effective tax rates," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(6), pages 850-870, December.
    5. Richard Fabling, 2009. "A Rough Guide to New Zealand's Longitudinal Business Database," Global COE Hi-Stat Discussion Paper Series gd09-103, Institute of Economic Research, Hitotsubashi University.
    6. Matt Benge, 1998. "Depreciation Provisions and Investment Incentives under Full Imputation," The Economic Record, The Economic Society of Australia, vol. 74(227), pages 329-345, December.
    7. Kenneth McKenzie & Jack Mintz, 1992. "Tax Effects on the Cost of Capital," NBER Chapters, in: Canada-U.S. Tax Comparisons, pages 189-216, National Bureau of Economic Research, Inc.
    8. Stephen Bond & Jing Xing, 2010. "Corporate taxation and capital accumulation," Working Papers 1015, Oxford University Centre for Business Taxation.
    9. Bond, Stephen & Van Reenen, John, 2007. "Microeconometric Models of Investment and Employment," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 65, Elsevier.
    10. Benge, Matt, 1998. "Depreciation Provisions and Investment Incentives under Full Imputation," The Economic Record, The Economic Society of Australia, vol. 74(227), pages 329-345, December.
    11. Peter Egger & Simon Loretz, 2010. "Homogeneous Profit Tax Effects for Heterogeneous Firms?," The World Economy, Wiley Blackwell, vol. 33(8), pages 1023-1041, August.
    12. Kemsley, D, 1998. "The effect of taxes on production location," Journal of Accounting Research, Wiley Blackwell, vol. 36(2), pages 321-341.
    13. Simon Gilchrist & Egon Zakrajsek, 2007. "Investment and the Cost of Capital: New Evidence from the Corporate Bond Market," NBER Working Papers 13174, National Bureau of Economic Research, Inc.
    14. Kenneth J. McKenzie & Jack M. Mintz & Kimberly A. Scharf, 1997. "Measuring Effective Tax Rates in the Presence of Multiple Inputs: A Production Based Approach," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(3), pages 337-359, July.
    15. 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.
    16. Schaller, Huntley, 2006. "Estimating the long-run user cost elasticity," Journal of Monetary Economics, Elsevier, vol. 53(4), pages 725-736, May.
    17. Mihir A. Desai & C. Fritz Foley & James R. Hines, 2004. "A Multinational Perspective on Capital Structure Choice and Internal Capital Markets," Journal of Finance, American Finance Association, vol. 59(6), pages 2451-2487, December.
    18. Matt Benge, 1997. "Taxes, Corporate Financial Policy and Investment Decisions in Australia," The Economic Record, The Economic Society of Australia, vol. 73(220), pages 1-15, March.
    19. Alan J. Auerbach, 1979. "Wealth Maximization and the Cost of Capital," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(3), pages 433-446.
    20. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition [‘Do domestic firms benefit from direct foreign investment? Evidence from Venezuela’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 17(35), pages 449-495.
    21. Fabling, Richard & Sanderson, Lynda, 2013. "Exporting and firm performance: Market entry, investment and expansion," Journal of International Economics, Elsevier, vol. 89(2), pages 422-431.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Richard Fabling & David C Maré, 2015. "Production function estimation using New Zealand’s Longitudinal Business Database," Working Papers 15_15, Motu Economic and Public Policy Research.
    2. Creedy, John & Gemmell, Norman, 2015. "Taxation and the User Cost of Capital : An Introduction," Working Paper Series 19269, Victoria University of Wellington, Chair in Public Finance.
    3. Lynda Sanderson, 2013. "Sources of international investment data in the Longitudinal Business Database," Treasury Working Paper Series 13/31, New Zealand Treasury.
    4. Elias Steinmüller & Georg U. Thunecke & Georg Wamser, 2019. "Corporate income taxes around the world: a survey on forward-looking tax measures and two applications," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(2), pages 418-456, April.
    5. Richard Fabling & Richard Kneller & Lynda Sanderson, 2015. "The Impact of Tax Changes on the Short-run Investment Behaviour of New Zealand Firms," Treasury Working Paper Series 15/05, New Zealand Treasury.
    6. John Creedy & Norman Gemmell, 2015. "Taxation and the User Cost of Capital: An Introduction," Treasury Working Paper Series 15/02, New Zealand Treasury.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fabling, Richard & Gemmell, Norman & Kneller, Richard & Sanderson, Lynda, 2013. "Estimating Firm-Level Effective Tax Rates and the User Cost of Capital in New Zealand," Working Paper Series 2854, Victoria University of Wellington, Chair in Public Finance.
    2. Fabling, Richard & Gemmell, Norman & Kneller, Richard & Sanderson, Lynda, 2013. "Estimating Firm-Level Effective Tax Rates and the User Cost of Capital in New Zealand," Working Paper Series 18787, Victoria University of Wellington, Chair in Public Finance.
    3. Creedy, John & Gemmell, Norman, 2015. "Taxation and the User Cost of Capital : An Introduction," Working Paper Series 19269, Victoria University of Wellington, Chair in Public Finance.
    4. John Creedy & Norman Gemmell, 2015. "Taxation and the User Cost of Capital: An Introduction," Treasury Working Paper Series 15/02, New Zealand Treasury.
    5. Elias Steinmüller & Georg U. Thunecke & Georg Wamser, 2019. "Corporate income taxes around the world: a survey on forward-looking tax measures and two applications," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(2), pages 418-456, April.
    6. Serhan Cevik & Fedor Miryugin, 2022. "Death and taxes: Does taxation matter for firm survival?," Economics and Politics, Wiley Blackwell, vol. 34(1), pages 92-112, March.
    7. Creedy, John & Gemmell, Norman, 2017. "Effective tax rates and the user cost of capital when interest rates are low," Economics Letters, Elsevier, vol. 156(C), pages 82-87.
    8. Simeon Djankov & Tim Ganser & Caralee McLiesh & Rita Ramalho & Andrei Shleifer, 2010. "The Effect of Corporate Taxes on Investment and Entrepreneurship," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(3), pages 31-64, July.
    9. Creedy, John & Gemmell, Norman, 2017. "Effective tax rates and the user cost of capital when interest rates are low," Economics Letters, Elsevier, vol. 156(C), pages 82-87.
    10. Leimbach, Marian & Edenhofer, Ottmar, 2005. "Capital mobility and spillovers within a modular approach to multi-region modeling," Conference papers 331342, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    11. Tobias Lindhe & Jan Södersten, 2009. "Dividend Taxation, Share Repurchases and the Equity Trap," CESifo Working Paper Series 2652, CESifo.
    12. Norman Gemmell & Richard Kneller & Danny McGowan & Ismael Sanz & José F. Sanz‐Sanz, 2018. "Corporate Taxation and Productivity Catch‐Up: Evidence from European Firms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(2), pages 372-399, April.
    13. Goldbach, Stefan & Møen, Jarle & Schindler, Dirk & Schjelderup, Guttorm & Wamser, Georg, 2021. "The tax-efficient use of debt in multinational corporations," Journal of Corporate Finance, Elsevier, vol. 71(C).
    14. Kemfert, Claudia & Kremers, Hans, 2003. "A Computable General Equilibrium Assessment of a Developing Country Joining an Annex 1 Permit Trading Market," Conference papers 331095, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    15. Gebhardt Heinz & Siemers Lars-H. R., 2017. "Die relative Steuerbelastung mittelständischer Kapitalgesellschaften: Evidenz von handelsbilanziellen Mikrodaten," Zeitschrift für Wirtschaftspolitik, De Gruyter, vol. 66(1), pages 1-35, April.
    16. Federici, Daniela & Parisi, Valentino & Ferrante, Francesco, 2020. "Heterogeneous firms, corporate taxes and export behavior: A firm-level investigation for Italy," Economic Modelling, Elsevier, vol. 88(C), pages 98-112.
    17. Michael P Devereux, 2007. "The Impact of Taxation on the Location of Capital, Firms and Profit: a Survey of Empirical Evidence," Working Papers 0702, Oxford University Centre for Business Taxation.
    18. Langenmayr, Dominika & Haufler, Andreas & Bauer, Christian J., 2015. "Should tax policy favor high- or low-productivity firms?," European Economic Review, Elsevier, vol. 73(C), pages 18-34.
    19. Jarle Møen & Dirk Schindler & Guttorm Schjelderup & Julia Tropina, 2011. "International Debt Shifting: Do Multinationals Shift Internal or External Debt?," Working Paper Series of the Department of Economics, University of Konstanz 2011-40, Department of Economics, University of Konstanz.
    20. Ligia Alba Melo-Becerra & Javier Ávila Mahecha & Jorge Enrique Ramos-Forero, 2017. "The Effect of Corporate Taxes on Investment: Evidence from the Colombian Firms," IHEID Working Papers 10-2017, Economics Section, The Graduate Institute of International Studies.

    More about this item

    Keywords

    User cost of capital; tax reform; EMTR; New Zealand;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nzt:nztwps:13/29. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CSS Web and Publishing, The Treasury (email available below). General contact details of provider: https://edirc.repec.org/data/tregvnz.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.