Public Policy, Political Connections, and Effective Tax Rates: Longitudinal Evidence from Malaysia

22 Pages Posted: 26 Jun 2007 Last revised: 24 Mar 2011

See all articles by Ajay Adhikari

Ajay Adhikari

American University - Kogod School of Business - Department of Accounting

Chek Derashid

Tunku Puteri Intan Safinaz School of Accountancy (TISSA)

Hao Zhang

University of Macau - Faculty of Business Administration

Abstract

This study examines the link between effective tax rates (ETR) and political connections in developing economies. The political connections explanation is informed by the observation that developing economies tend to be relationship-based rather than market-based capitalisms. Two proxies of political patronage are developed and applied to a group of Malaysian firms over a 10-year period. We find firms with political connections pay tax at significantly lower effective rates than other firms. Our results suggest that political connections are an important determinant of ETR in relationship-based economies.

JEL Classification: H24, H25, H26

Suggested Citation

Adhikari, Ajay and Derashid, Chek and Zhang, Hao, Public Policy, Political Connections, and Effective Tax Rates: Longitudinal Evidence from Malaysia. Journal of Accounting and Public Policy, Vol. 25, No. 5, 2006, Available at SSRN: https://ssrn.com/abstract=996072

Ajay Adhikari (Contact Author)

American University - Kogod School of Business - Department of Accounting ( email )

4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States

Chek Derashid

Tunku Puteri Intan Safinaz School of Accountancy (TISSA) ( email )

University Utara Malaysia
Sintok, Kedah Darul Aman 06010
Malaysia
+6049287600 (Phone)
+6049287611 (Fax)

HOME PAGE: http://www.fpk.uum.edu.my/chek

Hao Zhang

University of Macau - Faculty of Business Administration ( email )

Macau

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