At a Loss: The Real and Reporting Elasticity of Corporate Taxable Income

68 Pages Posted: 20 May 2015 Last revised: 15 Jun 2017

Elena Patel

U.S. Department of the Treasury, Office of Tax Analysis (OTA)

Nathan Seegert

University of Utah - Department of Finance

Matthew Smith

Government of the United States of America - US Department of Treasury

Date Written: June 14, 2017

Abstract

We use administrative data on the population of corporations to investigate the distortion of corporate taxes on private firms, which account for 99% of all corporations. In response to a 9% increase in corporate tax rates, firms decrease income by 8.9%--5.5% due to reporting differences (e.g., tax shields) and 3.4% due to real differences (e.g., investment). We find differences in agency costs, investment frictions, and tax aggressiveness between firms using cash and accrual accounting and among small and large firms. Our estimates suggest that lowering the corporate tax rate from 35% to 25% would increase firm value by 16%.

Keywords: Effective Incidence, Corporate Tax

JEL Classification: H22, H21, H25, H32, G38

Suggested Citation

Patel, Elena and Seegert, Nathan and Smith, Matthew, At a Loss: The Real and Reporting Elasticity of Corporate Taxable Income (June 14, 2017). Available at SSRN: https://ssrn.com/abstract=2608166 or http://dx.doi.org/10.2139/ssrn.2608166

Elena Patel

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave., N.W.
Washington, DC 22203
United States

Nathan Seegert (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

Matthew Smith

Government of the United States of America - US Department of Treasury ( email )

Washington, DC 20551
United States

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