Changes in corporate effective tax rates during three decades in Japan

Abstract This study compares changes in corporate effective tax rates (ETR) between firms in Japan and the United States. Using a sample of U.S. firms from 1988 to 2016, the declining trend in corporate cash and Generally Accepted Accounting Principles (GAAP) ETR measures is initially confirmed. However, different from the results of cash ETR documented in Dyreng et al. (2017) , GAAP ETR declines more rapidly for large U.S. multinational firms than for purely domestic firms, suggesting that multinational firms have better opportunities to implement cross-border tax-saving strategies. For Japanese firms, after controlling for the decrease in the statutory tax rate, there is no obvious time trend in GAAP ETR for multinational firms, but small and medium domestic firms experience a significant decline in ETR. Similar to Dyreng et al., we do not find any evidence that the time-series trend in ETR can be explained by firm characteristics of Japanese or U.S. firms.