Deferred Tax Positions and Incentives for Corporate Behavior Around Corporate Tax Changes
50 Pages Posted: 23 Feb 2007 Last revised: 20 Jun 2007
Date Written: February 2007
A firm's deferred tax position can influence how it is affected by a transition from one tax regime to another. We compile disaggregated deferred tax position data for a sample of large U.S. firms between 1993 and 2004 to explore how these positions might affect firm behavior before and after a pre-announced change in the statutory corporate tax rate. Our results suggest that the heterogeneous deferred tax positions of large U.S. corporations create substantial variation in the short-run effect of tax rate changes on reported earnings. Recognizing these divergent incentives is important for understanding the political economy of corporate tax reform.
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