Abstract

This paper investigates systematic changes in corporate effective tax rates over the past twenty-five years. We find that effective tax rates have decreased significantly. Contrary to conventional wisdom, we find that the decline in effective tax rates is not concentrated in multinational firms; effective tax rates have declined at approximately the same rate for both multinational and domestic firms. Moreover, we find that within multinational firms, both foreign and domestic effective rates have decreased. Finally, we find that changes in firm characteristics and declining foreign statutory tax rates explain little of the overall decrease in effective rates. The findings have broad implications for tax research, as well as for current policy debates about reforming the corporate income tax.