Work

Corporate Tax Enforcement and Business Activity

Year: 2022

Type: article

Abstract: ABSTRACT We examine the consequences of corporate tax enforcement for business activity. Using two different empirical approaches—a regional design and a firm-level design—we document that corporate tax enforcement is negatively associated with business activity, as measured by establishments and employment. This association is economically significant and is robust to tests that mitigate concerns regarding endogeneity and measurement. Furthermore, we find that the negative association between tax enforcement and business activity varies substantially in the cross-section. Specifically, we find that it is weaker for regions and firms with greater access to external financing sources and is stronger for regions and firms where compliance costs are likely higher and for which the ex ante costs of tax enforcement are greater. Our findings suggest that the effects of tax enforcement on business activity are economically important and heterogeneous, which should be of interest to academics and policymakers. JEL Classifications: H25; H26; R11; R12.

Source: The Accounting Review

DOI: 10.2139/ssrn.4226165

Authors: John Gallemore, Martin Jacob

Institutions: University of North Carolina at Chapel Hill, IESE Business School, ESE Business School, WHU – Otto Beisheim School of Management

Language: English

Topic: Taxation and Compliance Studies

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDGs: Decent work and economic growth, Peace, justice, and strong institutions

Open Access status: bronze

Funder: Deutsche Forschungsgemeinschaft