Do Business Characteristics Determine an Effective Tax Rate?

Elena Fernández-Rodríguez and Antonio Martínez-Arias

Chinese Economy, 2012, vol. 45, issue 6, 60-83

Abstract: This article conducts a comparative analysis of the tax burden for listed companies in China and the United States and studies the factors that determine the effective tax rate (ETR). Information from the financial statements of sample companies in the Datastream/Worldscope database is used to calculate the corporate tax burden in these two geographical areas. The application of panel data estimation procedures finds (1) that U.S. companies have significantly higher ETRs than Chinese companies, and (2) that the tax burden is determined by the characteristics of each company (size, capital structure, asset mix, profitability) and the tax policy of the government. The main contribution of this article is its finding of a nonlinear relationship between ETR and size, leverage, and capital intensity. The simultaneous consideration of two geographical areas is also a new approach.

Date: 2012
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