Estimating Corporate Tax Avoidance With Accounting-Based Measures

Tax Notes,Vol. 158, No. 4, 2018

14 Pages Posted: 14 Sep 2017 Last revised: 23 Feb 2018

See all articles by Noel Brock

Noel Brock

Eastern Michigan Univeristy

Roy Clemons

New Mexico State University

Adam Nowak

West Virginia University

Date Written: January 22, 2018

Abstract

Dyreng et al. (2017) find that the effective tax rates for both foreign and domestic corporations have steadily declined over the past quarter century. However, contrary to conventional wisdom, the authors also find that U.S. multinational corporations do not have a tax-based cost advantage relative to their domestic counterparts. We investigate this unexpected finding by reexamining corporate income taxes over the past quarter century employing an alternative tax avoidance measure developed by Henry and Sansing (2014). The authors measure addresses both sample selection bias and measurement error that exists when using income as the denominator when calculating effective tax rates. Using the Henry and Sansing (2014) measure of tax avoidance, we find that U.S. multinational corporations do have a tax-based cost advantage relative to their domestic counterparts. Thus, sample selection bias is a plausible explanation for the unexpected tax-based cost advantage of US domestic firms reported in prior research.

Keywords: Multinational Corporations, Effective Tax Rate, Cash Effective Tax Rate, Corporate Tax Avoidance

JEL Classification: F38, H25, H26

Suggested Citation

Brock, Noel and Clemons, Roy and Nowak, Adam, Estimating Corporate Tax Avoidance With Accounting-Based Measures (January 22, 2018). Tax Notes,Vol. 158, No. 4, 2018, Available at SSRN: https://ssrn.com/abstract=3035592 or http://dx.doi.org/10.2139/ssrn.3035592

Noel Brock

Eastern Michigan Univeristy ( email )

Eastern Michigan University
Ypsilanti, MI 48197
United States
619-300-1207 (Phone)

HOME PAGE: http://https://www.emich.edu/cob/faculty/n_brock.php

Roy Clemons (Contact Author)

New Mexico State University ( email )

P.O. Box 30001
Las Cruces, NM 88003-8001
United States

Adam Nowak

West Virginia University ( email )

PO Box 6025
Morgantown, WV 26506
United States

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