We study the stock price reaction to news about tax aggressiveness. We find that, on average, a company’s stock price declines when there is news about its involvement in tax shelters. The stock price decline is smaller for companies with relatively high effective tax rates, possibly because news about tax aggressiveness is more favorably viewed for those firms where public information would su...

This paper focuses on how inflation interacts with taxes and interest rates to affect capital formation.1 It uses a simple credit-market framework to explain how inflation magnifies the distorting effects of taxation when the tax treatment of interest income and expense is not fully indexed to inflation.2 The distortion involves a real tax wedge consisting of the difference between the real int...

Recent studies have shown that adding a short extension to a long-only tax exempt equity portfolio leads to a more efficient portfolio. In this work, we show that these extended mandates are even more effective for investors subject to taxes. Not only is the portfolio more efficiently positioned from a pretax perspective, but it offers significant after-tax benefits from increased loss harvesti...

The dictum that each side of a debate should not be entitled to its own facts is not being observed in the corporate tax discussion. Advocates of lower corporate income tax rates focus on the relatively high corporate statutory rate, while proponents of the status quo or higher corporate effective tax rates (ETRs) point to studies and SEC filings showing that the U.S. federal corporate ETR appl...

This paper develops a positive theory of taxation in a federation of states. Its main motivation is to explain two facts about tax schedules in the US. The first one is that states’ income tax rates are relatively low compared to federal income tax rates, in most cases below 5%. The second one is that the overall effective tax schedule at the state level is regressive in every state. The result...