The Effects of Management Practices on Effective Tax Rates: Evidence from Ecuador
This paper examines the effects of management practices on effective tax rates (ETR) in a sample of medium and large manufacturing firms in Ecuador. We use a novel data set on management practice scores matched with administrative tax data from the Superintendence of Companies and the Internal Revenue Services of Ecuador based on firms' tax filings. We find that better management practices are positively associated with effective tax rates, defined as the share of tax obligations to profits. This result is robust under various specifications controlling for different covariates, and to different measures of effective tax rates. Furthermore, our findings indicate that the use of fiscal incentives is positively associated with higher effective tax rates. However, firms that use fiscal incentives are able to fatten or reduce their effective tax rates as management practices improved. Overall, our findings suggest that government-sponsored policies that seek to promote better management practices may be self-sustained, if the additional tax revenue expected from better management practices through higher profits is able to cover the cost of the programs.
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| Language: | English |
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Inter-American Development Bank
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| Subjects: | Tax Rate, Fiscal Incentive, Productivity, Taxation, Manufacturing Industry, Income Tax, D22 - Firm Behavior: Empirical Analysis, H20 - Taxation Subsidies and Revenue: General, L20 - Firm Objectives Organization and Behavior: General M2 - Business Economics, management practices;tax obligations;tax incentives, |
| Online Access: | http://dx.doi.org/10.18235/0003505 https://publications.iadb.org/en/effects-management-practices-effective-tax-rates-evidence-ecuador |
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| Summary: | This paper examines the effects of management practices on effective tax rates (ETR) in a sample of medium and large manufacturing firms in Ecuador. We use a novel data set on management practice scores matched with administrative tax data from the Superintendence of Companies and the Internal Revenue Services of Ecuador based on firms' tax filings. We find that better management practices are positively associated with effective tax rates, defined as the share of tax obligations to profits. This result is robust under various specifications controlling for different covariates, and to different measures of effective tax rates. Furthermore, our findings indicate that the use of fiscal incentives is positively associated with higher effective tax rates. However, firms that use fiscal incentives are able to fatten or reduce their effective tax rates as management practices improved. Overall, our findings suggest that government-sponsored policies that seek to promote better management practices may be self-sustained, if the additional tax revenue expected from better management practices through higher profits is able to cover the cost of the programs. |
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