AN ANALYSIS OF PROPERTY-CASUALTY INSURERS: Results 3

EASYETR

Column B shows the coefficients when EASYETR is included as a regressor. Recall EASYETR is intended to identify insurers that underwrite primarily in lines with the most opportunity for avoiding taxes through cross-state allocation of multistate policies. Sixteen percent of the sample involves insurer-states with a positive value for EASYETR, i.e., write greater than 75 percent of their business in lines other than automobile, farm, fire, home and workers’ compensation.

The regression coefficient in Column B on EASYETR is -5.35 (t-statistic = -3.74), consistent with lower reported prices by insurers specializing in lines where opportunities are greater to avoid taxes. Combining the ETR and EASYETR coefficients, the estimated lower-bound response (no implicit taxes) for these insurers to a one standard deviation increase in the effective state tax rate is a 0.049 decrease in the reported premium-to-loss ratio or a 3.0 percent drop in reported insurance prices. The corresponding estimated upper-bound response (assuming full implicit tax effects) is a 0.057 (0.049 + 0.008) decrease in the reported premium-to-loss ratio or a 3.5 percent drop in reported insurance prices. fast payday loan

PREMRATE and INCRATE

Column C shows that the coefficients on PREMRATE (-1.83 with t-statistic of -1.90) and INCRATE (-0.94 with a t-statistic of -3.57) are consistent with state premium tax and income tax avoidance, respectively. The results using statutory tax rates confirm the earlier findings using effective tax rates. A standard deviation increase in the PREMRATE (0.006 percentage points) reduces reported insurance prices by 0.7 (2.1) percent assuming no (full) implicit taxes.14 INCRATE’s coefficient implies that a one percentage point increase in a state’s income tax rate would decrease reported insurance prices by 0.6 (1.0) percent assuming no (full) implicit taxes.