THE IMPLICATIONS OF TAX ASYMMETRY FOR U.S. CORPORATIONS

Abstract

This paper examines the implications of the asymmetric treatment of tax losses for U.S. corporationsfor 1993—2004. We find that partial refunding of tax loss es reduces their real values by approximately one-half and produces modest effective tax rate differentials between taxable and non-taxable firms. However, if firms use debt financing or utilize an investment tax credit, then rate differentials can be significant. We also find that certain industries and younger firms disproportionately bear the negative consequences of partial refunding, due to either delayed realization or the inability to use tax losses to offset prior or future profits.