This research report presents the marginal effective corporate tax rate measured using about 18,500 firms' financial statements over the period of 1991 to 2007. It also presents the results of METR by 30 industry-types and by the legal size of firm. Even if METR represents actual tax burden of individual firms incurred by the marginal investment more inclusively and accurately than the statutory tax rate, study on METR using firm level data is hard to find in Korea.

In this research, METR is measured reflecting both the changes in tax codes for investment tax credits (ITC), depreciation, as well as  the statutory rate and the changes in individual firm's capital structure and the component ratio of fixed assets. The results of METR are presented by industry types and the size of firms, and the average METR of each quartile is also presented. In addition, the policy simulation is also performed to analyze how the METR changes    according to changes in policy variables such as statutory rates, ITC rates, and service years of assets. The main findings of such analysis can be summarized as follows:

1. one of the goals of tax reform, “Broader tax base, Lower tax rate”, has been achieving since 1991, which is implied by the trend of METR and the difference between 1st quartile and 4th quartile average METRs that are decreasing slightly from 1991 to 2007 with some moderate fluctuations.

2. Tax reform in the future should target to reduce the variation in the industrial averages of METR since the coefficient of variation (standard deviation/average) of industrial averages of METR become twice larger in 2007 than 2000 and this increased cross-sector tax differential will hamper the growth of overall economy as reported in Lee et al. (2008)

3. According to the results of policy simulation, the decrease in low statutory rate, the increase in the minimum taxable income level that high statutory rate will be applied to, or the increase in the investment tax credit rate will give relatively more benefits to firms with low level METRs. However, the decrease in high statutory rate or the enlarged beneficiaries of investment tax credit to investments in metropolitan area turned out to give relatively more benefits to firms with high level METRs such as large firms and those in 4th quartile.

The discussion above is based on each firm's METR measured using firm level data including very limited information. The METR presented in this report does not reflect other important tax codes, for example the alternative minimum tax, that certainly changes the investment behavior of each firm. Therefore, The METR reported here might be different from actual METR faced by individual firms, which implies that the use of results presented in this report must   require a caution.