The impact of tax policy uncertainty on forecasting

2021 ◽  
Author(s):  
Jennifer L. Brown ◽  
K.C. Lin ◽  
Jared Moore ◽  
Laura A. Wellman
Keyword(s):  
Tax Policy ◽  
Policy Uncertainty ◽  
Tax Rates ◽  
Firm Level ◽  
Effective Tax Rates ◽  
Market Participants ◽  
Regulatory Processes ◽  
Definition Of ◽  
The Impact ◽  
Real Costs

This study examines the impact of tax policy uncertainty (TPU) on analysts' forecasts and managers' interim estimates of effective tax rates (ETRs). We adopt a broad definition of TPU that encompasses both the legislative and regulatory processes and perform tests to validate a news-based measure of TPU consistent with our definition. We document that 1) analysts' implied ETR forecasts are less accurate and more disperse during periods of high TPU, 2) managers' ETR estimates are less accurate during periods of high TPU, and 3) the presence of relatively inaccurate management ETR estimates strengthens the effects of TPU on analysts' ETR forecasts. We further find that firm-level tax-related complexity exacerbates the effects of TPU on analysts' and managers' ETR predictions. Overall, our results are consistent with uncertainty surrounding tax policy impairing analysts' and managers' ability to assess and predict future tax-related fundamentals, thus imposing real costs on managers and market participants.

Partisanship, Tax Policy, and Corporate Profit-Shifting in a Globalized World Economy

2017 ◽  
Vol 50 (14) ◽  
pp. 1998-2026 ◽  
Author(s):  
Mi Jeong Shin
Keyword(s):  
Tax Policy ◽  
Multinational Firms ◽  
Transfer Pricing ◽  
Tax Rates ◽  
Growth Data ◽  
Profit Shifting ◽  
Effective Tax Rates ◽  
The Difference ◽  
Globalized World ◽  
The Impact

Political science scholarship has found mixed evidence on the impact of partisanship on the taxation of firms. In this article, I show that although left-leaning governments set tax rates at higher levels than right-leaning governments, the difference in the effective tax rates paid by firms is much less dramatic between left and right governments. I argue that left-leaning governments maintain high tax rates, a visible policy their constituency supports, while allowing firms to transfer profits abroad to minimize their tax burden (transfer pricing). Constituency costs hinder them from cutting tax rates to avoid backlash from voters, but they impose fewer restrictions on profit-shifting to attract investment by multinational firms for economic growth. Data covering 19 advanced economies between 2006 and 2009 support my theoretical expectation. My analyses suggest that the effect of government partisanship on corporate tax policy can be ambiguous when political parties consider various policy tools.

scholarly journals How Does Aggregate Tax Policy Uncertainty Affect Default Risk?

2020 ◽  
Vol 13 (12) ◽  
pp. 319
Author(s):  
Mehmet Serkan Tosun ◽  
Serhat Yildiz
Keyword(s):  
Tax Policy ◽  
Default Risk ◽  
Financial Risk ◽  
Policy Uncertainty ◽  
Probability Of Default ◽  
Firm Level ◽  
Credit Quality ◽  
Economic Significance ◽  
The Impact

We examine the impact of aggregate tax policy uncertainty on firm-level default risk. Due to uncertainties associated with tax policies, firms could have difficulties in determining their optimal debt level and use too much debt to increase their values. This can increase firms’ financial risk and default probabilities. At the same time, tax policy uncertainty may lead some firms to take less risk which could lower their use of debt and in turn lower the probability of default. We find that tax policy uncertainty is positively associated with firms’ expected default probabilities. In terms of economic significance, our findings show an increase of 14.83% in expected default probability, on a relative basis. Our results are robust to controlling for conditions of the economy, conditions of the stock market, financial constraints of firms, and credit quality of firms. Our evidence adds to two strands of research: research on taxation and firms’ risk profiles and the impact of policy uncertainty on firms’ decisions.

scholarly journals Impact of Economic Policy Uncertainty on Trade Credit Provision: The Role of Social Trust

2020 ◽  
Vol 12 (4) ◽  
pp. 1601 ◽  
Author(s):  
Peng Liu ◽  
Daxin Dong
Keyword(s):  
Economic Policy ◽  
Fixed Effects ◽  
Trade Credit ◽  
Social Trust ◽  
Alternative Measure ◽  
Policy Uncertainty ◽  
Firm Level ◽  
Economic Policy Uncertainty ◽  
The Impact

This paper explores the impact of economic policy uncertainty (EPU) on trade credit while taking into account the interactive role of social trust. The analysis is based on the panel data econometric model with fixed effects. Using firm-level data across 16 economies from 1995Q1 to 2015Q1, we find that (i) there exists a negative and highly significant relationship between economic policy uncertainty and the provision of trade credit; (ii) this relation is weaker for firms in countries with higher levels of social trust; and (iii) the effects of EPU and social trust are both more substantial for firms in more financially constrained industries. The impact of social trust is not a result of people’s high confidence in government, an effective legal system of enforcing contracts, a high-quality institutional system or an excellent system of protecting shareholders. Our result is robust if we exclude business cycle effects or use an alternative measure of financial constraints.

Determinants of corporate effective tax rates: evidence from the euro area

2020 ◽  
Vol 33 (3/4) ◽  
pp. 427-444
Author(s):  
Antonio Barbera ◽  
Paloma Merello ◽  
Rafael Molina
Keyword(s):  
Euro Area ◽  
Listed Companies ◽  
Tax Rates ◽  
Effective Tax Rates ◽  
Content Type ◽  
Individual Analysis ◽  
The Individual ◽  
The Impact ◽  
Generalized Moments ◽  
Positive Effect

PurposeThe purpose of this paper is to investigate the effect of the determinants of corporate effective tax rates (ETR) of listed companies in euro area.Design/methodology/approachWith a large and recent panel of 2,870 listed companies for the period 2005–2016, the authors use the generalized moments method (GMM) to estimate global models for three groups of countries and specific models for six selected countries: Germany, Spain, France, Italy, Belgium and Greece.FindingsThe results confirm that ETR have different determinants depending on the countries analyzed. There is a significantly positive relationship with leverage and negative with size and financial profitability. However, economic profitability shows a statistically positive effect in the new members, but negative effect on old ones. In the individual analysis, Germany and Spain maintain this negative association with return on assets (ROA), but Belgium and Greece show a positive effect. The effect of the economic cycle shows statistically relevant, negatively in Germany but positively in Belgium and Greece.Originality/valueThis paper makes a novel contribution to the current debate on the need for harmonization of corporate income tax in the European Union (EU). For the first time, the group of countries whose common currency is the euro is considered with a great level of detail. In addition, the impact derived from the enlargement of the euro area and the individual analysis of the main countries is included. The European authorities must take into account the specific differences found in the ETR determinants because it hinders to take measures that limit tax competition.

The Impact of Headquarter and Subsidiary Locations on Multinationals’ Effective Tax Rates

2014 ◽  
Vol 28 (1) ◽  
pp. 33-62 ◽  
Author(s):  
Kevin S. Markle ◽  
Douglas A. Shackelford
Keyword(s):  
Tax Rates ◽  
Effective Tax Rates ◽  
The Impact

scholarly journals Absorption of EU funds in the context of Polish enterprises competitiveness measured by profitability ratios

2015 ◽  
Vol 6 (1) ◽  
pp. 113 ◽  
Author(s):  
Anna Wildowicz-Giegiel ◽  
Adam Wyszkowski
Keyword(s):  
Firm Level ◽  
Policy Makers ◽  
Long Run ◽  
Short Period ◽  
Central Statistical ◽  
Central Statistical Office ◽  
Innovative Economy ◽  
Definition Of ◽  
Core Capabilities ◽  
The Impact

Competitiveness at the firm level is a subject of interest not only to managers and policy makers but also academics. An effective functioning under the conditions of new economy requires from the enterprises to develop their core capabilities and talents along with the ability to quickly identify and seize the opportunities generated by market environment. The implementation of such an approach allows the creation and sustain of economic surpluses in the long-run. The paper aims to examine the profitability of enterprises in Poland which is regarded in the context of absorption of EU funds in years 2007–2013. Taking into account that Poland became one of the largest beneficiaries, it is worth analyzing the impact of EU funding on the economic performance of Polish enterprises. The paper offers a critical reflection on the relationship between the absorption of EU funds and Polish enterprises competitiveness on the basis of  the content analysis literature and statistical data derived from the European Commission, the Central Statistical Office and the Ministry of Regional Development. It is assumed simultaneously that the competitiveness of enterprises is expressed in the term of profitability rates. In spite of limitations which relate to the adopted definition of competitiveness and the short period of the conducted analysis concerning the key relationship, the paper contributes to the debate on the significance of EU Funds in the process of building modern and innovative economy.

scholarly journals Debt Overhang, Gazelles’ Growth, and Fiscal Policy: A Note from the Quantile Regression Approach

2021 ◽  
Vol 13 (18) ◽  
pp. 10457
Author(s):  
Sorin Gabriel Anton ◽  
Mihaela Onofrei ◽  
Emilia Gogu ◽  
Bogdan Constantin Neculau ◽  
Florin Mihai
Keyword(s):  
Fiscal Policy ◽  
Quantile Regression ◽  
Firm Growth ◽  
Tax Rates ◽  
Lower Growth ◽  
Effective Tax Rates ◽  
Debt Overhang ◽  
Regression Approach ◽  
Negative Effect ◽  
The Impact

The paper aims to examine the relationship between leverage and firm growth and the impact of fiscal policy on this relationship using a panel data quantile regression approach. Employing a sample of gazelles from emerging Europe for the 2006–2014 period, we find that debt overhang negatively affects firm growth only for the lower growth quantiles. In addition, we found that the negative effect is higher for the gazelles located in countries with lower corporate income effective tax rates. However, for the higher growth quantiles, the impact of debt on firm growth is positive and statistically significant. Our results reconcile the mixed results of the previous studies and have practical implications for financing strategies in emerging markets.

scholarly journals Corporate taxes and the location of FDI in Europe: The importance of economic integration and project characteristics

2018 ◽  
Vol 63 (217) ◽  
pp. 39-73 ◽  
Author(s):  
Tomás Silva ◽  
Sérgio Lagoa
Keyword(s):  
Capital Intensity ◽  
Foreign Firms ◽  
Monetary Integration ◽  
High Tech ◽  
Corporate Taxes ◽  
Tax Rates ◽  
Firm Level ◽  
Tax Rate ◽  
Project Characteristics ◽  
The Impact

European countries face ever-increasing competition for Foreign Direct Investment (FDI). This paper studies how corporate taxes affect the location of FDI in Europe. Using firm-level data, we start by analysing the impact of the level and volatility of three tax rates on FDI: effective, statutory, and marginal tax rates. Next, we investigate how economic and monetary integration influences the effect of taxes on FDI. Finally, we focus on how the impact of taxes varies by project characteristics and sector: expansion versus new investment, industry versus services, high-tech versus low-tech manufacturing industries, and high versus low capital intensity firms. We conclude that stable taxes play a significant role in attracting FDI and, most importantly, that lowering taxes fosters FDI especially when the country has a high tax rate or is outside the euro area. There are some nuances in this relationship that are relevant to policymakers. Tax cuts are particularly important in stimulating foreign firms already in situ to expand their activities and in attracting industrial businesses. Finally, capital-intensive projects are less sensitive to taxes, but high-tech manufacturing projects have the same reaction to tax rates as other manufacturing projects.

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