Working Paper: NBER ID: w2279
Authors: Rosanne Altshuler; Alan J. Auerbach
Abstract: This study uses tax return data for U.S. nonfinancial corporations for the period 1971-82 to estimate the importance of restrictions on the ability of firms to use tax credits and to obtain refunds for tax losses. Our results suggest that the incidence of such unused tax benefits increased substantially during the early 1980s, though we do not find these increases attributable to increased investment incentives during that period. Using estimates of a three-state (taxable, not taxable, partially taxable) transition probability model, we calculate the effective tax rates on various types of investments undertaken by firms differing with respect to tax status. We confirm previous findings about the marginal tax rate on interest payments, and that it is important to distinguish current tax payments from marginal tax rates in estimating the incentive to invest.
Keywords: Tax Law; Corporate Behavior; Investment Incentives; Tax Credits; Tax Losses
JEL Codes: H25; H32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| asymmetric treatment of gains and losses (G41) | firm behavior (D21) |
| tax constraints (H20) | corporate investment incentives (G31) |
| limitations on tax credits and carry losses forward (G32) | unused tax benefits (H20) |
| effective tax rates on investments (H26) | corporate investment decisions (G31) |