Macroeconomic Effects of Corporate Tax Policy

55 Pages Posted: 27 Mar 2019

See all articles by Terry J. Shevlin

Terry J. Shevlin

University of California-Irvine

Lakshmanan Shivakumar

London Business School

Oktay Urcan

University of Illinois at Urbana-Champaign

Date Written: March 25, 2019

Abstract

Prior studies on the relation between corporate taxes and future macroeconomic growth present contradictory evidence. We argue this mixed evidence is at least partly due to the use of statutory corporate tax rates which ignore the complexity of tax exemptions, tax deductions, tax enforcement and firms’ tax planning. We propose an alternative tax rate measure that aggregates cash effective tax rates of listed firms, which reflect not only statutory tax rates, but also other features of the tax code, enforcement, and firms’ tax planning. We find a strong robust negative relation between country-level effective tax rates and future macroeconomic growth.

Keywords: Economic growth, Corporate tax, Effective tax rate

JEL Classification: H25, H26, M41

Suggested Citation

Shevlin, Terry J. and Shivakumar, Lakshmanan and Urcan, Oktay, Macroeconomic Effects of Corporate Tax Policy (March 25, 2019). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3360717

Terry J. Shevlin

University of California-Irvine ( email )

Paul Merage School of Business
Irvine, CA California 92697-3125
United States
2065509891 (Phone)

Lakshmanan Shivakumar

London Business School ( email )

Regent's Park
London, NW1 4SA
United Kingdom
+44 20 7000 8115 (Phone)
+44 20 7000 8101 (Fax)

HOME PAGE: http://faculty.london.edu/lshivakumar/

Oktay Urcan (Contact Author)

University of Illinois at Urbana-Champaign ( email )

515 E. Gregory Drive
4009 BIF MC-520
Champaign, IL 61820
United States
217-265-0383 (Phone)
217-244-0902 (Fax)

HOME PAGE: http://business.illinois.edu/profile/oktay-urcan/

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