Determinants Of Corporate Effective Tax Rates: Evidence From The Euro Area

Purpose The purpose of this paper is to investigate the effect of the determinants of corporate effective tax rates (ETR) of listed companies in euro area. Design/methodology/approach With a large and recent panel of 2,870 listed companies for the period 2005-2016, the authors use the generalized moments method (GMM) to estimate global models for three groups of countries and specific models for six selected countries: Germany, Spain, France, Italy, Belgium and Greece. Findings The results confirm that ETR have different determinants depending on the countries analyzed. There is a significantly positive relationship with leverage and negative with size and financial profitability. However, economic profitability shows a statistically positive effect in the new members, but negative effect on old ones. In the individual analysis, Germany and Spain maintain this negative association with return on assets (ROA), but Belgium and Greece show a positive effect. The effect of the economic cycle shows statistically relevant, negatively in Germany but positively in Belgium and Greece. Originality/value This paper makes a novel contribution to the current debate on the need for harmonization of corporate income tax in the European Union (EU). For the first time, the group of countries whose common currency is the euro is considered with a great level of detail. In addition, the impact derived from the enlargement of the euro area and the individual analysis of the main countries is included. The European authorities must take into account the specific differences found in the ETR determinants because it hinders to take measures that limit tax competition.