Size firm and others determinants of the effective taxation on earnings in Brazil

Abstract

Several researches, using databases from different countries, have dedicated themselves to investigate a possible relationship between particular firms characteristics, especially the size, and effective tax that they support, although no consensus has been defined on relationship analyzed. This study aims to investigate whether the effective tax on the Brazilian company earnings can be explained by its characteristics, specifically, size, debt, capital intensivity, inventories intensivity and profitability, everything under assumptions of the political costs hypothesis and of theory of economic regulation. The sample consisted of 565 firms, classified in 8 sectors of activity, over the period from 1997 to 2011, which resulted in 4,368 firm-year. The investigation was made with the use of two statistical models whose estimations were performed by panel data technique. Results indicated that the size and especially debt can be considered determinants of effective taxation on earnings. It should be stressed that, in the case of size, although the results are partly inconclusive, there they indicated the existence of a positive association with the taxation, which is consistent with political costs hypothesis assumptions. However, results also indicated the existence of a nonlinear relationship that suggests that from a certain size, firms would be able to reduce your taxation, which aligns with the political power hypothesis.