Abstract The Tax Reform Act of 1986 significantly changed the corporate tax structure with the objective of shifting 120 billion of taxes from individuals to corporations. This development, in addition to the conflicting results of previous research, prompts a new took at the relation between firm size and effective tax rates. The annual resuits for 1971 through 1989 suggest that the significant differences in effective tax rates between large and small firms that had existed prior to the Tax Reform Act of 1986, as originally found in Zimmerman (1983) and Porcano (1986), had largely dissipated across and within one-digit SIC industries by the end of the decade. The results also suggest that Porcano's (1986) findings are quite sensitive to the choice of the Valueline or Compustat data base, whereas Zimmerman's (1983) study was robust with respect to that choice. These results not only shed light on the conflicting results in prior studies, but also have important implications for future tax policy decisions and for accounting choice studies that have emphasized the importance of the corporate tax component in the political cost hypothesis.
Kern et al. (Sun,) studied this question.