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Habit persistence in effective tax rates

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This paper uses administrative data from the Australian Tax Office (ATO) to model the effective tax rates (ETRs) of large Australian corporates. The extent to which there is any habit persistence in ETRs is also examined. The results suggest that unobserved entity heterogeneity is important in explaining ETRs. In terms of observed heterogeneity, entity size, level of leverage, capital intensity, foreign income and R&D, are important explanators of ETRs. There is also evidence of a significant amount of habit persistence, implying that ETRs converge monotonically towards the statutory rate of corporation tax.
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Document Type: Research Article

Affiliations: 1: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010, Australia 2: Department of Econometrics and Business Statistics Monash University, Clayton, Victoria 3800, Australia

Publication date: 2003-05-01

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