We examine the magnitude and sources of difference between income for tax and financial reporting purposes using publicly available data from 1988 to 1998. We find evidence that the book-tax income spread has generally increased over time, but that a relatively small set of variables are able to explain this increase. We also find that these same variables explain a large percentage of the variation in the book-tax spread across firms. While neither supporting, nor disproving, the existence and growth in tax sheltering behavior, the results do suggest that financial statement-based measures of income have become less representative of firms' taxable income.
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Paper provided by Massachusetts Institute of Technology (MIT), Sloan School of Management in its series Working papers with number
4332-01.
Length: Date of creation: 02 Jun 2003 Date of revision: Handle: RePEc:mit:sloanp:3520
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