Effective tax rate (ETR) measures: alternatives and their validity

Corporate tax related empirical research often uses effective tax rates to investigate cross-sectional differences in the tax attributes of companies. Effective tax rates are often defined as (current or total) tax expense over financial accounting income before taxes, where the (current or total) tax expense is an estimate of the actual taxes paid. This approximation of the actual tax payment by using tax expense is often used, as the actual tax payment and taxable income were or are proprietary information, thereby rendering it difficult if not impossible to use this information to calculate effective tax rates. Due to changes in financial accounting standards more information on the actual tax payment and taxable income is now generally available in US financial statements. This paper argues that the use of an effective tax rate measure utilizing tax expenses has some inherent dangers which are to a lesser extent the case in an effective tax rate using actual taxes paid. Two inherent dangers of a tax expense based ETR measure are the quality of the tax expense measure as an estimation of the actual taxes paid and timing differences between tax expense and actual taxes paid. The differences between tax expenses and actual taxes paid ETRs are researched in an empirical study as well as other proposed ETR measures. Results from this empirical study indicate that in certain situations it is more appropriate to use an effective tax rate measure based on actual taxes paid rather than on tax expenses.microeconomics ;

Determinants of the Variability of Corporate Effective Tax Rates (ETRs): Evidence for the Netherlands

A sizeable portion of US research has tried to assess the ‘fairness’ of the corporate income tax system, that is: are companies treated in a non-discriminatory way under the corporate income tax system. Similar research has, however, never taken place in the Netherlands. The goal of this paper is to address this shortcoming. This paper examines whether an association can be found between the variation in average effective tax rates (ETRs) among Dutch companies and company characteristics such as size, asset mix, extent of foreign operations, performance, leverage, being a public company and being a listed company. Controls are used for net operating loss status, negative tax expense status, and interaction between firm size and net operating loss status and negative tax expense status. The results in the paper are based on an analysis of a pooled panel of company-level data from financial statements in the CD-ROM REACH A datafile for five years, 1994 to 1998. In this paper two financial statement based ETR measures are used. One ETR measure is based on income before taxes and another ETR measure is based on cash flow. Results from a fixed effects generalised linear model provide support for the conclusion that, after controlling for indirect effects, the taxation of corporate profits in the Netherlands is fairly neutral. These results are supported by additional sensitivity analysis.microeconomics ;

Explicit, Implicit and Total Taxes in the Corporate Sector: Evidence for the Netherlands

This paper provides empirical evidence on the existence of implicit taxes in the corporate sector. With this finding, it provides support for the offsetting nature of explicit versus implicit taxes. Governments continuously provide tax preferences (tax incentives) to firms to induce these firms to alter their investment, production and financing decisions to reallocate resources towards outcomes that the government prefers. Tax preferences lead to lower explicit tax rates for firms that make use of these preferences. However (see Scholes and Wolfson (1992) and Wilkie (1992)), economic theory suggests that in equilibrium all firms must earn the same after-tax return (e.g. ROE). Hence high (low) implicit taxes (tax preference induced adjustments of pre-tax returns) can be expected for firms with low (high) explicit taxes. This paper uses financial statements of 123 listed firms for six years (1991-1996) to provide empirical evidence on the existence of implicit taxes in the corporate sector in the Netherlands. The paper finds that the inverse relation between implicit and explicit taxes exists, but is not a strong as expected, suggesting market frictions that prevent the equalisation of after-tax returns.microeconomics ;

Strongly anisotropic roughness in surfaces driven by an oblique particle flux

Using field theoretic renormalization, an MBE-type growth process with an obliquely incident influx of atoms is examined. The projection of the beam on the substrate plane selects a "parallel" direction, with rotational invariance restricted to the transverse directions. Depending on the behavior of an effective anisotropic surface tension, a line of second order transitions is identified, as well as a line of potentially first order transitions, joined by a multicritical point. Near the second order transitions and the multicritical point, the surface roughness is strongly anisotropic. Four different roughness exponents are introduced and computed, describing the surface in different directions, in real or momentum space. The results presented challenge an earlier study of the multicritical point.Comment: 11 pages, 2 figures, REVTeX

Adaptive interpolation of discrete-time signals that can be modeled as autoregressive processes

This paper presents an adaptive algorithm for the restoration of lost sample values in discrete-time signals that can locally be described by means of autoregressive processes. The only restrictions are that the positions of the unknown samples should be known and that they should be embedded in a sufficiently large neighborhood of known samples. The estimates of the unknown samples are obtained by minimizing the sum of squares of the residual errors that involve estimates of the autoregressive parameters. A statistical analysis shows that, for a burst of lost samples, the expected quadratic interpolation error per sample converges to the signal variance when the burst length tends to infinity. The method is in fact the first step of an iterative algorithm, in which in each iteration step the current estimates of the missing samples are used to compute the new estimates. Furthermore, the feasibility of implementation in hardware for real-time use is established. The method has been tested on artificially generated auto-regressive processes as well as on digitized music and speech signals

Scaling regimes and critical dimensions in the Kardar-Parisi-Zhang problem

We study the scaling regimes for the Kardar-Parisi-Zhang equation with noise correlator R(q) ~ (1 + w q^{-2 \rho}) in Fourier space, as a function of \rho and the spatial dimension d. By means of a stochastic Cole-Hopf transformation, the critical and correction-to-scaling exponents at the roughening transition are determined to all orders in a (d - d_c) expansion. We also argue that there is a intriguing possibility that the rough phases above and below the lower critical dimension d_c = 2 (1 + \rho) are genuinely different which could lead to a re-interpretation of results in the literature.Comment: Latex, 7 pages, eps files for two figures as well as Europhys. Lett. style files included; slightly expanded reincarnatio

Specificity and Kinetics of Haloalkane Dehalogenase

Haloalkane dehalogenase converts halogenated alkanes to their corresponding alcohols. The active site is buried inside the protein and lined with hydrophobic residues. The reaction proceeds via a covalent substrate-enzyme complex. This paper describes a steady-state and pre-steady-state kinetic analysis of the conversion of a number of substrates of the dehalogenase. The kinetic mechanism for the “natural” substrate 1,2-dichloroethane and for the brominated analog and nematocide 1,2-dibromoethane are given. In general, brominated substrates had a lower Km, but a similar kcat than the chlorinated analogs. The rate of C-Br bond cleavage was higher than the rate of C-Cl bond cleavage, which is in agreement with the leaving group abilities of these halogens. The lower Km for brominated compounds therefore originates both from the higher rate of C-Br bond cleavage and from a lower Ks for bromo-compounds. However, the rate-determining step in the conversion (kcat) of 1,2-dibromoethane and 1,2-dichloroethane was found to be release of the charged halide ion out of the active site cavity, explaining the different Km but similar kcat values for these compounds. The study provides a basis for the analysis of rate-determining steps in the hydrolysis of various environmentally important substrates.