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Short summary: I want to examine of a multinational has a higher or lower effective tax rate ( ETR=dependent veriable) compared to small companies and large domestic companies. ( categorical variable 1=SME ; 2= large domestic and 3=MNE) However, I do not Know if I can tell in the end this is true, because main effects and interactions have other signs. What if I include (according to theory) another interaction term, how can I interpret the dummy variable MNE...

Can I conclude from this regression that being a MNE increases the ETR by 5,6% ( holding the other variables constant)? I red that the main effect of the variables in the interaction term have to be interpreted as the effect of that variable for the reference group ( SMEs in my case). But what can I conclude now if I interpret both main effect and interactions: that being a multinational on average increases the ETR by 5,6% or and that multinationals with a higher equity ratio decrease the ETR by -6,7% compared to SMEs ( so that multinationals with a higher equity ratio have on average actually a lower ETR compared to SMEs (5,6% -6,7%= -1,1).... Help

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  • $\begingroup$ you seem to nix up small, large and MNE. compare small with MNe $\endgroup$ – Subhash C. Davar Apr 25 '16 at 11:35
  • $\begingroup$ Large domestic is good enough to compare with MNe. State your objecitive more clearly. $\endgroup$ – Subhash C. Davar Apr 25 '16 at 11:46
  • $\begingroup$ Thanks for the comment. I just want to now in the end ( so also considering the interactions) which type of firm has the highest ( or lowest ) ETR(=dependent variable)...And i'm a bit confused because the single effect of MNE1 and the interaction effect of MNE1x EQRATIO have opposing signs... $\endgroup$ – Pieter Buyl Apr 25 '16 at 13:17
  • $\begingroup$ how did you equity ratio? Higher equity ratio results in higher amount of dividends and hence greater ETR and a lower equity permits deduction of interest on debentures/bonds etc. that finally reduces the profits. Hiher chargeable expendture should reduce profits. It is difficult to explain. Also think of a proper interaction term for MNe × eq ratio.Take for example capital emploed divided by sales or ... $\endgroup$ – Subhash C. Davar Apr 25 '16 at 14:02
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    $\begingroup$ OK. What do you exactly mean with run two regressions for MNE and SME...make a subsample? ( I heard it's not possible top compare magnitudes of the slopes when doin that?) I indeed want to verify if being classified as an sme reduces the ETR or the opposite ( zo the hypothesis is a question mark)... $\endgroup$ – Pieter Buyl Apr 26 '16 at 6:30

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