Working Paper: NBER ID: w24382
Authors: Eric Zwick
Abstract: Does tax code complexity alter corporate behavior? This paper investigates this question by focusing on the decision to claim refunds for tax losses. In a sample of 1.2M observations from the population of corporate tax returns, only 37% of eligible firms claim their refund. A simple cost-benefit analysis of the tax loss choice cannot explain low take-up, which motivates an investigation of how tax complexity alters this calculation. A research design exploiting tax preparer switches, deaths, and relocations shows that sophisticated preparers increase the claiming behavior of small and mid-market firms. Tax complexity decreases take-up among large firms through interactions of refund claims with other tax code provisions and with the audit process.
Keywords: Corporate Tax Complexity; Tax Refunds; Fiscal Policy; Tax Code; Corporate Behavior
JEL Codes: D22; D92; E62; H2; H25; H3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tax preparer sophistication (H26) | Likelihood of claiming carryback refunds (H26) |
| Certified public accountants (CPAs) (M41) | Likelihood of claiming refunds (H26) |
| Size of a preparer's client base (L84) | Likelihood of claiming refunds (H26) |
| Tax complexity (H26) | Takeup rates of refunds (large firms) (H32) |
| Corporate alternative minimum tax (AMT) (G32) | Likelihood of claiming refunds (large firms) (H32) |
| Tax complexity (H26) | Suboptimal claiming behavior (small firms) (D21) |
| Agency problems (G34) | Suboptimal claiming behavior (small firms) (D21) |