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The Implications of Tax Asymmetry for U.S. Corporations

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  • Cooper, Michael G.
  • Knittel, Matthew J

Abstract

This paper examines the implications of the asymmetric treatment of tax losses for U.S. corporations for 1993–2004. We find that partial refunding of tax losses reduces their real values by approximately one-half and produces modest effective tax rate differentials between taxable and non-taxable firms. However, if firms use debt financing or utilize an investment tax credit, then rate differentials can be significant. We also find that certain industries and younger firms disproportionately bear the negative consequences of partial refunding, due to either delayed realization or the inability to use tax losses to offset prior or future profits.

Suggested Citation

  • Cooper, Michael G. & Knittel, Matthew J, 2010. "The Implications of Tax Asymmetry for U.S. Corporations," National Tax Journal, National Tax Association;National Tax Journal, vol. 63(1), pages 33-61, March.
    • Handle: RePEc:ntj:journl:v:63:y:2010:i:1:p:33-61
    DOI: 10.17310/ntj.2010.1.02
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    References listed on IDEAS

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    1. Jack M. Mintz, 1988. "An Empirical Estimate of Corporate Tax Refundability and Effective Tax Rates," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 103(1), pages 225-231.
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    7. Cooper, Michael & Knittel, Matthew, 2006. "Partial Loss Refundability: How Are Corporate Tax Losses Used?," National Tax Journal, National Tax Association;National Tax Journal, vol. 59(3), pages 651-663, September.
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    Cited by:

    1. Laura Wegener, 2017. "Strukturelle Unterschiede zwischen positiven und negativen Einkünften – eine Untersuchung der einkommensteuerlichen Verlusteinkunftsarten Gewerbebetrieb sowie Vermietung und Verpachtung auf Basis des ," AStA Wirtschafts- und Sozialstatistisches Archiv, Springer;Deutsche Statistische Gesellschaft - German Statistical Society, vol. 11(3), pages 177-204, December.
    2. Lei Gao & Leo L. Yang & Joseph H. Zhang, 2016. "Corporate patents, R&D success, and tax avoidance," Review of Quantitative Finance and Accounting, Springer, vol. 47(4), pages 1063-1096, November.
    3. Knittel, Matthew J. & Nelson, Susan C., 2011. "How Would Small Business Owners Fare Under a Business Entity Tax?," National Tax Journal, National Tax Association;National Tax Journal, vol. 64(4), pages 949-975, December.
    4. Daniel Dreßler & Michael Overesch, 2013. "Investment impact of tax loss treatment—empirical insights from a panel of multinationals," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(3), pages 513-543, June.
    5. Dominika Langenmayr & Rebecca Lester, 2013. "Taxation and corporate risk-taking," Working Papers 1316, Oxford University Centre for Business Taxation.
    6. Bührle, Anna Theresa & Spengel, Christoph, 2019. "Tax law and the transfer of start-up losses: A European overview and categorization," ZEW Discussion Papers 19-037, ZEW - Leibniz Centre for European Economic Research.
    7. Cronin, Julie Anne & Lin, Emily Y. & Power, Laura & Cooper, Michael, 2013. "Distributing the Corporate Income Tax: Revised U.S. Treasury Methodology," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(1), pages 239-262, March.
    8. Schmitt, Noemi & Tuinstra, Jan & Westerhoff, Frank, 2017. "Side effects of nonlinear profit taxes in an evolutionary market entry model: Abrupt changes, coexisting attractors and hysteresis problems," Journal of Economic Behavior & Organization, Elsevier, vol. 135(C), pages 15-38.
    9. Masanori Orihara, 2016. "Corporate tax asymmetries and R&D: Evidence from a tax reform for business groups in Japan," Discussion papers ron273, Policy Research Institute, Ministry of Finance Japan.
    10. Guo, Yue Mei & Li, Xiao, 2023. "The impact of greater VAT tax neutrality on total factor productivity: Evidence from China’s VAT credit refund reform in 2018," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 922-936.
    11. Ortmann, Regina & Sureth, Caren, 2014. "Can the CCCTB alleviate tax discrimination against loss-making European multinational groups?," arqus Discussion Papers in Quantitative Tax Research 165, arqus - Arbeitskreis Quantitative Steuerlehre.
    12. Bührle, Anna Theresa, 2021. "Do tax loss restrictions distort venture capital funding of start-ups?," ZEW Discussion Papers 21-008, ZEW - Leibniz Centre for European Economic Research.
    13. Masanori Orihara, 2015. "Tax loss carryforwards and corporate behavior," Discussion papers ron271, Policy Research Institute, Ministry of Finance Japan.
    14. Regina Ortmann & Caren Sureth-Sloane, 2016. "Can the CCCTB alleviate tax discrimination against loss-making European multinational groups?," Journal of Business Economics, Springer, vol. 86(5), pages 441-475, July.
    15. Rebecca Lester, 2019. "Made in the U.S.A.? A Study of Firm Responses to Domestic Production Incentives," Journal of Accounting Research, Wiley Blackwell, vol. 57(4), pages 1059-1114, September.

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