Do Multinationals or Domestic Firms Face Higher Effective Tax Rates?
To our knowledge, this paper provides the most comprehensive analysis of firm-level corporate income tax expenses to date. We use publicly available financial statement information to estimate firm-level effective tax rates (ETRs) for 10,642 corporations from 85 countries from 1988 to 2007. We find that multinationals and domestic-only companies face similar ETRs. We also find that, on average, ETRs declined by seven percentage points or 20% over the period. German, Japanese, Australian and Canadian decreases were large. American, British, and French declines were more modest. Nonetheless, because ETRs were falling worldwide, the ordinal rank from high-tax countries to low-tax countries changed little. Japanese firms always faced the highest ETRs. ETRs for tax havens and countries from the Middle East and Asia (ignoring Japan) were always lower than those for the U.S. and European countries. These findings should provide some empirical underpinning for ongoing policy debates about the taxation of multinational profits.
We appreciate the helpful comments from Rosanne Altshuler, Julian Alworth, Elizabeth Blankespoor, Kim Clausing, Mihir Desai, Michael Devereux, Scott Dyreng, Kevin Hassett, Michelle Hanlon, Ken Klassen, Mark Lang, Peter Merrill, Jana Raedy, Nemit Schroff, Joel Slemrod, Martin Sullivan, and workshop participants at the 2009 Institute for Fiscal Studies/European Tax Policy Forum conference, the 2009 International Tax Policy Forum/Urban-Brookings Tax Policy Center Institution conference, the 2009 Journal of the American Taxation Association Tax Research Conference, Duke University, Northwestern University, the University of Michigan, and the University of North Carolina. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.