Financing Value-Added Tax Cash
Robert P. Crum
Despite the numerous value-added tax (VAT) proposals
considered by Administrative and Congressional policy makers,
no prior empirically-based comparative study has been made of
the cash-flow effects of a broad range of VATs on individual companies.
Furthermore, economists and accountants have not analyzed the
effects that financing those cash flows may have on neutrality.
This study develops a VAT cost-of-financing (COF) model for evaluating
VAT proposals from three interrelated neutrality perspectives.
The analysis, which uses 1977-82 financial data, reveals that
VAT forms can have markedly different COFs, can vary in the equality
of their distribution of COF among companies, and can provide
differential incentives for companies to alter their production
functions. Some forms give companies financing benefits, but no
one VAT form is found to be neutral from all perspectives. Implications
for tax policy and future research are discussed.
The Effect of the Alternative
Minimum Tax Book Income Adjustment on Accrual Decisions
Jeffrey D. Gramlich
This study utilizes cross sectional regression analysis
to examine the effect of the corporate alternative minimum tax
book income adjustment (AMTBIA) on corporate accrual decisions.
Results indicate significant income-decreasing accrual behavior
in 1987, the initial year of the book income levy. Further, the
evidence generally supports a "big boom" hypothesis
in which managers chose income-increasing accruals in 1986, the
final year preceding the tax on book income. In both years, transportation
and communication firms and financial service organizations exhibited
the greatest modification of accruals.
Measurement of Effective Corporate
Tax Rates Using Financial Statement Information
Thomas C. Omer, Karen H. Molloy, and David A.
A number of empirical studies have used effective
tax rate (ETR) measures calculated from financial statement information
to examine the relations between taxes, firm decisions, and firm
characteristics. This study investigates two issues relating to
the use of ETRs: (1) the potential for defensible alternative
measures to provide different results, and (2) the problems associated
with using financial statement information to estimate tax and
Our results indicate that alternative ETR measures
and systematic deferred tax reporting differences in the financial
statements cause notable shifts in estimated ETRs. The systematic
deferred tax differences have a predictable directional effect
on estimated ETRs. In addition, this effect is not cancelled when
comparisons between deterred tax reporting groups are made. In
light of these results, researchers should evaluate the robustness
of their results across alternative ETR measures. Our results
also suggest that systematic differences in the financial reporting
of deferred tax liabilities are related to firm size. Use of the
deferred tax expense amount rather than the change in the long-term
deferred tax liability in the ETR measure should alleviate this
problem across alternative ETR measures.
Replication of Empirical
Carol M. Fischer and John D. Russell
This paper describes a process for performing replications
of empirical research, with the replication of Wilkie's (1988)
analysis of effective tax rates as a specific case study. The
paper proposes that replications can be used as an effective pedagogical
device to develop the research skills of doctoral students. Further,
it is argues that replications serve to promote high quality research.
In describing the replication process, the paper discusses criteria
for selecting a study to replicate, the planning process, data
preparation, the resolution of discrepancies, and conducting the
extension. The case study is presented to illustrate the process.
The results of the replication, which fully substantiated Wilkie's
results, are briefly described, and the results of the extension,
which suggest that Wilkie's model is not as powerful for cash
flow measures of effective tax rates as it is for accrual-based
measures, are discussed.
The Tax Aspects of Exportation:
A Decision Model Approach
Ernest R. Larkins
The purpose of this paper is to develop decision
models that can be used to determine whether one of the tax-favored
export entities described in the Internal Revenue Code should
be utilized and, if so, which one is the most favorable. Since
the interest-charge domestic international sales corporation (DISC),
a tax deferral vehicle, and the foreign sales corporation (FSC)
and small foreign sales corporation (SFSC), tax exemption vehicles,
involve different cash flow patterns, the models consider the
time value of money, among other things. The models are analyzed
using different levels of selected variables. The break-even sales
volume of exporters was found to be especially sensitive to profit
margin assumptions and the spread between the cost of capital
and the T-bill rate. Exporters that switch from a DISC to a FSC
when export sales begin to increase may be able to increase the
present value of their after-tax profits.