Selling, general, and administrative responses by firms to national corporate tax rate cuts.

What is it about?

We have examined how firms have responded to a number of recent national corporate tax rate cuts (e.g. a cut from 24.5% to 20.0% in Finland 2014). We have looked at financial statement data of 70,000 observations (firm-years) from 33 OECD member countries and found that firms in general use the window of opportunity that a tax change generates by engaging in a form of tax planning via selling, general, and administrative costs. We also find that certain characteristics are associated with this behavior.

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Photo by Sharon McCutcheon on Unsplash

Photo by Sharon McCutcheon on Unsplash

Why is it important?

All in all, we inform people who use financial statements and other firm disclosure by providing an explanation for a specific form of cost behavior. Furthermore, we contribute to the discussion on corporate taxation by highlighting that firms seem to cut their tax payments in response to country-level cuts in corporate taxes, which are primarily made to make countries more attractive for business. This translates into large losses in tax revenues for the governments.