Proxies for the Marginal Tax Rate

Posted: 15 Jul 1998

See all articles by John R. Graham

John R. Graham

Duke University; National Bureau of Economic Research (NBER)

Date Written: December 1995

Abstract

This paper focuses on how to best measure the corporate marginal tax rate, which is an important input into analysis of the cost of capital, financing policy, corporate hedging, corporate reorganizations, and the relative pricing between taxable and tax-advantaged securities. The results indicate that the simulated tax rate used by Shevlin (1990) and Graham (1996) is the best available proxy for the "true" marginal tax rate; however, the simulated variable is difficult to calculate. If the simulated rate is unavailable, a very easy-to-calculate trichotomous variable and the statutory marginal tax rate are reasonable alternatives, better than most commonly used tax variables. The difficult task of forecasting taxable income is also discussed.

JEL Classification: G30, H25

Suggested Citation

Graham, John Robert, Proxies for the Marginal Tax Rate (December 1995). Available at SSRN: https://ssrn.com/abstract=2547

John Robert Graham (Contact Author)

Duke University ( email )

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