tax rate for non-lobbying rms is equal to 21.4 % _._

# 3.2 Evolution of Lobbying Expenditure and Tax Rates

Now I turn my attention to aggregate patterns in the data for lobbying for taxation, focusing on the 2007-2009 credit crunch. I document that during the last U.S. credit crunch there was an unusual increase in lobbying activity for taxation, which holds at both extensive and intensive margins.<sup>19</sup> Figure (1) shows the evolution of aggregate lobbying expenditure for taxation between 2001 and 2014 as percentage deviation from linear trend.<sup>20</sup> By 2009 lobbying expenditure deviates 15% from trend suggesting an exacerbation of rent-seeking activity during this time. As mentioned before, this rise is due to the increase in the number of lobbying rms and the increase in the average expenditure that each rm is doing for that purpose. Between 2004 and 2007, on average 7.1 % of rms in Compustat lobby for taxation, while for the period 2008-2011 the average fraction of rms was 10.35 % , indicating an increase in lobbying activity on the extensive margin. The intensive margin follows a similar pattern. For the period 2004-2007, the average lobbying expenditure was $0.26 million, but for the period 2008-2011 it increased to $0.31 million. If we look at deviations from trend, we see a similar pattern. Figure (2) displays the evolution of the intensity of lobbying relative to the linear trend, and as expected there is an important increase in the values observed during the period of the study. This data raises a natural question: why do we observe such an increase in lobbying activity to inuence the tax code?

One possible reason could come from the increase in rents that corporations can extract. Evidence provided by the Government Accountability Oce (GAO,2013) shows that between 2007 and 2010 the amount of tax benets that the government granted to corporations increased from 0.6 % of the GDP to 1.2 % . Even though we cannot argue that the government increased those resources due to the corporate pressure, we can certainly think that the allocation of some of those funds among rms was inuenced by corporate lobbying.

If lobbying aects the tax code and benets certain rms and sectors, we should observe that lobbying rms reduce their eective tax rate as a result of the increase in lobbying activity during the crisis. In order to show this feature in the data, I compute the average eective tax rate for lobbying and non-lobbying rms in my sample. The results between 2007 and 2014 are displayed in Figure (3). The gure shows that both groups of rms saw declines in tax rates. However, those that engaged in lobbying obtained a bigger decline, consistent with the increase in lobbying activity.

To test whether the tax rates of lobbying and non-lobbying rms diverged during the crisis, I run the projection of rm level eective tax rates on time dummies _βt_ , the interaction of those dummies with an indicator for lobbying for rm _i_ in period _t_ , and industry xed eects _inds_ ,

> 19Unless otherwise noted, I will refer to lobbying for taxation as simply lobbying.

> 20Lobbying variables are deated by the CPI with 2007 as base year. I use a linear trend since there is not enough data available to apply a Hodrick-Prescott lter. In the Online Appendix 4.1, I provide a similar gure with a quadratic detrending.

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