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We thank the Office of Tax Analysis, U.S. Treasury, for access to the Corporate Tax Model data used in this paper. We also thank Len Burman, Laurie Dicker, Lowell Dworin, Dan Frisch, and Tom Neubig of OTA and participants in seminars at Harvard, MIT, Michigan and Pennsylvania for suggestions and comments on an earlier draft. We are especially grateful to Paul Dobbins of OTA for his continuing technical advice and assistance. ABSTRACTThis study uses tax return data for U.S. nonfinancial corporations for the period 1971-82 to estimate the importance of restrictions on the ability of firms to use tax credits and to obtain refunds for tax losses. Our results suggest that the incidence of such unused tax benefits increased substantially during the early 1980s, though we do not find these increases attributable to increased investment incentives during that period.Using estimates of a three-state (taxable, not taxable, partially taxable) transition probability model, we calculate the effective tax rates on various types of investments undertaken by firms differing with respect to tax status. We confirm previous findings about the marginal tax rate on interest payments, and that it is important to distinguish current tax payments from marginal tax rates in estimating the incentive to invest.

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: This paper contributes to the small empirical literature that attempts to estimate tax reaction functions of national governments competing with other national governments. After presenting a simple theoretical model, we estimate reaction functions for European countries for a pure Nash model and for a model in which the U.S. can act as a Stackelberg leader while the European countries compete with each other in a Nash way. We initially find a positive Nash reaction function for European countries with respect to capital taxes, but no reaction with respect to labor taxes. Further investigation of the capital tax response results in our main finding, that the European countries behave as if the U.S. is a Stackelberg leader in setting corporate taxes after the U.S. 1986 Tax Reform Act but not before. We also test whether Germany or the United Kingdom played a leadership role and find that they did not. These regression results are reinforced by our Granger causality tests, and are somewhat stronger when we exclude certain tax havens. Over time, European countries seem to have become more intensely competitive with the U.S. in corporate taxes, but less intensely competitive among themselves. Terms of use: Documents in