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Lobbying and Taxes

by Brian Kelleher Richtera, Krislert Samphantharak, and Jeffrey F. Timmons. Reading for Tuesday, 30 October.

Lobbying dominates corporate political spending, but comprehensive studies of the benefits accrued are scarce. Using a dataset of all US firms with publicly available financial statements, we delve into the tax benefits obtained from lobbying. Although the level of a firm’s effective tax rate does not compel it to lobby, the more a firm spends on lobbying the lower the effective tax rate it pays. Increasing registered lobbying expenditures by 1% appears to lower effective tax rates by somewhere in the range of 0.5 to 1.6 percentage points for the average firm that lobbies. While individual firms amass considerable benefits, the costs of lobbying-induced tax breaks appear modest for the government.

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