WORKING PAPERS

(2025) IPOs and Foreign Tax Structures

coauthors: Christine Dobridge and Becky Lester

Does going public affect the amount and type of corporate international tax planning? Using a panel of U.S. corporate tax return data from 2004 to 2018, we show that IPO completion is associated with the rapid implementation of multinational foreign tax structures central to the current international tax policy debate. Specifically, within three years after filing for an IPO, firms (i) expand their presence in low-tax jurisdictions, (ii) enter into cross-border agreements that accompany intangible asset transfers to foreign subsidiaries, and (iii) increase their level of foreign related-party payments. The effects are strongest among firms with strong capital market pressure to hit post-IPO earnings targets, firms with high R&D spending prior to the IPO, and firms with limited ability to use net operating loss carryforwards. We contribute to the nascent literature studying tax implications of IPOs by documenting the types and timing of specific tax strategies that enable public firms to remain lightly taxed in the post-IPO period.

(2024) Taxing S Corporations as C Corporations

coauthors: Lucas Goodman and Quinton White

We calculate tax rates for S corporations and compare to hypothetical scenarios where they are taxed as C corporations.  Using tax records from 2018 to 2021 to analyze S corporations with positive net income, we find that these firms would face a higher tax rate on average as C corporations, although a small share would face a lower tax rate.  This result holds across the income distribution of firms and at nearly all firm asset levels.  We find that the tax advantage of being an S corporation would shrink, but remain positive, if the Section 199A deduction for qualifying business income were repealed.  We examine the sensitivity of our results to assumptions on the share of profits distributed to owners and the degree to which retained earnings are eventually taxed at the shareholder level.  Averaging across firms, we find that firms face lower tax rates as S corporations even if undistributed profits fully escape taxation in the C corporation counterfactual.  Weighting by net income, we find that firms would pay lower tax as C corporations only if they distribute little of their profits and retained earnings are lightly taxed at the shareholder level.

(2023) The Secular Decline in Private Firm Leverage

coauthors: Aymeric Bellon, Christine Dobridge, and Erik Gilje

Using firm-level administrative tax data, we document dramatic reductions in private leverage since the Global Financial Crisis, while leverage among public firms rose during this period. Changing firm characteristics are unable to account for this pattern. Younger and smaller private firms experience large declines in leverage. Reduced leverage among private firms is correlated with lower investment. The decline in private firm leverage and investment is strongly related to plausibly exogenous increases in local area bank capital requirements. Our findings suggest that banks’ credit supply plays a prominent role in explaining the leverage pattern of private firms.

(2016) Estimating the Elasticity of Broad Income for High-Income Taxpayers

coauthors: Laura Kawano and Caroline Weber

This paper precisely estimates the elasticity of broad income (EBI) with respect to the marginal net-of-tax rate for high-income taxpayers. We study the introduction of a new top income tax bracket in 2013 using a large panel of high-income taxpayers drawn from administrative tax records. Our estimation strategy – inverse probability weighting – takes into account the tremendous income volatility experienced by high-income taxpayers. We obtain an intent-to-treat (ITT) EBI of 0.013. After rescaling to account for taxpayers crossing the top income tax bracket threshold, we obtain a treatment-effect-on-the-treated elasticity that is bounded below by the ITT estimate and above by 0.034.