The Department of Business and Management Science and NoCeT invite you to an online faculty seminar with Nathan Seegert, University of Utah.
How Do Firms Respond to Corporate Taxes?
Using a novel empirical approach and newly available administrative data on tax filings in the United States, we estimate the corporate elasticity of taxable income and determine how such tax responsiveness varies depending on accounting method, firm size, and interest rate. In response to a 10% increase in the expected marginal tax rate, private firms decrease taxable income by 9.1%, which indicates a discernibly more elastic response than prevailing estimates.
This response reflects a decrease in taxable income of 3.0% arising from real economic adjustments to a firm’s scale of operations and 6.0% arising from tax adjustments via, for example, revenue and cost timing. Responsiveness to the corporate tax rate is more elastic if a firm uses cash (9.9%) rather than accrual accounting (7.4%), if the firm is small (9.9%) rather than large (8.6%), and if the firm has a relatively high-cost access to capital.