The declining GAAP ETR trend over 1960-2016

Yuzhu LU, Liang SHAO, Yue ZHANG

Research output: Journal PublicationsJournal Article (refereed)peer-review


This study aims to provide a comprehensive analysis on the reasons of the observed trend in the GAAP ETR over 1960–2016.

The authors use a linear tax function which allows for time-varying coefficients to track the trend in GAAP ETR over 1960–2016. This approach can decompose the ETR trend into the trends of the statutory tax rate, the propensity to recognize taxes, the tax-related firm characteristics and their coefficients. Thus, the authors can quantify the contribution of each factor in the tax function to the ETR trend.

Before 1988, the declining trend in tax expense is mainly driven by changes in the statutory tax rate; in contrast, after 1988, the trend is completely explained by firms’ decreasing propensity to recognize tax expense. While prevalent across different groups of firms, the decreasing propensity to recognize tax expense in the recent 30 years is more pronounced among firms that have higher needs for tax savings or greater tax-saving advantages.

To the best of the authors’ knowledge, this study is the first one that uses a trend analysis to examine the reasons for the downward trend in tax expense over a long period (1960–2016). The results show that, although the trend appears for the full sample period, it is driven by different forces between the first and second half of the time window. A decreasing propensity to recognize tax expense is the main reason for only the trend in recent years, which calls for attention from academia and policymakers. The results also show which firms have had faster trends in their propensity to recognize tax expense, suggesting targets for tax enforcement and tax researchers.
Original languageEnglish
Pages (from-to)398-422
Number of pages25
JournalReview of Accounting and Finance
Issue number5
Early online date21 Oct 2022
Publication statusPublished - 3 Nov 2022

Bibliographical note

Publisher Copyright:
© 2022, Emerald Publishing Limited.


  • Propensity to recognize tax expense
  • Tax saving
  • GAAP ETR trend
  • H26
  • M41

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