Managing Annual Accounting Reports to Avoid State Taxes: An Analysis of Property-Casualty Insurers / Kathy R. Petroni, Douglas A. Shackelford.

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Petroni, Kathy R

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w6590.Publication details: Cambridge, Mass. National Bureau of Economic Research 1998.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We hypothesize that, in their annual accounting reports, insurers allocate premiums and losses from multistate policies to reduce total state taxes. To test this prediction, we examine firm-level data, collected from the publicly-available statutory reports used to compute tax bases and filed with each state government. If insurers manage allocations to avoid taxes, we anticipate an inverse relation between the tax rate and the premium-to-loss ratio, which is the industry's standard measure of the price of a unit of coverage. Firm-specific prices are computed using premium and loss information from the annual regulatory reports filed with each state in which an insurer underwrites. Primary analysis is conducted on 12,573 insurer-state observations from 1993. We find the premium-to-loss ratio is decreasing in state tax rates, consistent with multistate insurers managing their annual accounting reports to shift premiums (losses) to more (less) favorably taxed states.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w6590 (Browse shelf(Opens below))	Not For Loan

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June 1998.

We hypothesize that, in their annual accounting reports, insurers allocate premiums and losses from multistate policies to reduce total state taxes. To test this prediction, we examine firm-level data, collected from the publicly-available statutory reports used to compute tax bases and filed with each state government. If insurers manage allocations to avoid taxes, we anticipate an inverse relation between the tax rate and the premium-to-loss ratio, which is the industry's standard measure of the price of a unit of coverage. Firm-specific prices are computed using premium and loss information from the annual regulatory reports filed with each state in which an insurer underwrites. Primary analysis is conducted on 12,573 insurer-state observations from 1993. We find the premium-to-loss ratio is decreasing in state tax rates, consistent with multistate insurers managing their annual accounting reports to shift premiums (losses) to more (less) favorably taxed states.