Calculating Tax Rate Volatility

[Lucas Klawun]

Hello everyone,

I am currently working on my seminar paper for my masters program. For the purpose of this paper I have to work empirically for the first time and therefore collecting my first experiences with Stata. As part of my work I have to calculate the volatility of Cash Effective Tax Rates (VolCETR). I want to calculate the VolCETR via the following formula:
(CETR(t) - CETR(t-1)) / CETR(t-1)
I have around 5000 values of CETR for multiple firms and over multiple years.

Now my problem is that I am not sure how to create a commond that indicates to Stata to use a value of CETR from the previous period, i.e. t-1.
Or is the calculation of volatilities not possible in that manner and I need a different approach?

Hopefully, my problem became clear and one of you is kind enough to help me.

Kind regards,
Lucas

[William Lisowski]

Welcome to Statalist.

So what you describe - values of CETR for multiple firms and over multiple years - is panel data, and you will want to start by reading the introductory material in the Stata Longitudinal-Data/Panel-Data Reference Manual PDF included in your Stata installation and accessible from Stata's Help menu.

We will assume your data includes variables that identify the firm and the year - we will call those variables FIRM and YEAR for purposes of this example. Then you will start by describing your longitudinal data to Stata

xtset firm year

after which you can calculate your formula with

generate VolCETR = (CETR-L.CETR)/L.CETR

You will want to read the help files for Stata's time series variable notation

help tsvarlist

and the documentation for xtset, which you can find in the manual mentioned above, or an abbreviated version with

help xtset

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