Tax Loss Carryforwards and Corporate Tax Incentives

57 Pages Posted: 5 Jul 2004 Last revised: 7 Aug 2010

See all articles by Alan J. Auerbach

Alan J. Auerbach

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

James M. Poterba

National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Department of Economics

Date Written: March 1986

Abstract

This paper investigates the extent to which loss-offset constraints affect corporate tax incentives. Using data gathered from corporate annual reports, we estimate that in 1984 fifteen percent of the firms in the nonfinancial corporate sector had tax loss carryforwards. When weighted by their market value, however, these firms account for less than three percent of this sector, suggesting that loss carryforwards are concentrated among small firms and affect relatively few large corporations. For those firms with loss carryforwards, however, the incentive effects of the corporate income tax may differ significantly from those facing taxable firms. We demonstrate this by calculating the effective tax rates on equipment and structures for both types of firms. Our results suggest that firms which are currently taxable have a substantially greater incentive for equipment investment than firms with loss carryforwards, but that loss carryforwards have a relatively smaller effect on the tax incentive for investing in structures. Overall, firms with loss carryforwards receive a smaller investment stimulus than taxable firms.

Suggested Citation

Auerbach, Alan Jeffrey and Poterba, James M., Tax Loss Carryforwards and Corporate Tax Incentives (March 1986). NBER Working Paper No. w1863. Available at SSRN: https://ssrn.com/abstract=341823

Alan Jeffrey Auerbach (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-643-0711 (Phone)
510-643-0413 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

James M. Poterba

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-350
Cambridge, MA 02142
United States
617-253-6673 (Phone)
617-253-1330 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
70
rank
322,217
Abstract Views
1,555
PlumX Metrics