Using tax return data to simulate corporate marginal tax rates

We document that simulated corporate marginal tax rates based on financial statement data [Shevlin, T., 1990. Estimating corporate marginal tax rates with asymmetric tax treatment of gains and losses. The Journal of the American Taxation Association 11, 51–67; Graham, J., 1996a. Debt and the margina...

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Bibliographic Details
Published in:Journal of accounting & economics 2008-12, Vol.46 (2), p.366-388
Main Authors: Graham, John R., Mills, Lillian F.
Format: Article
Language:English
Subjects:
Algorithms
Book tax difference
Capital structure
Correlation analysis
Financial reporting
Financial statements
Marginal tax rate
Marginal tax rate Simulated tax rates Tax return data Financial statements Book tax difference Capital structure
Simulated tax rates
Simulation
Studies
Tax rates
Tax return data
Tax returns
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Summary:We document that simulated corporate marginal tax rates based on financial statement data [Shevlin, T., 1990. Estimating corporate marginal tax rates with asymmetric tax treatment of gains and losses. The Journal of the American Taxation Association 11, 51–67; Graham, J., 1996a. Debt and the marginal tax rate. Journal of Financial Economics 41, 41–73] are highly correlated with simulated rates based on corporate tax return data. We provide algorithms that can be used to estimate the book or tax simulated rates when they are not available. We find that the simulated book marginal tax rate does a better job of explaining financial statement debt ratios than does the analogous tax return variable and discuss how the book-simulated rate is likely to be an appropriate measure in settings with global, long-term considerations.
ISSN:0165-4101
1879-1980
DOI:10.1016/j.jacceco.2007.10.001