Taxation, Corporate Social Responsibility and the Business Enterprise

21 Pages Posted: 30 Jul 2009

Date Written: July 29, 2009


Under the aggregate or nexus of contracts view of the corporation, which is the dominant view among contemporary corporate scholars, corporate social responsibility (CSR) is an illegitimate attempt by managers to tax shareholders without their consent, and leads to managers being unaccountable to the shareholders that elected them. If so, management can be argued also to have a responsibility to maximize shareholder profits by minimizing corporate taxes as much as possible, and the state has no business in encouraging corporations to engage in illegitimate CSR through the tax system. This paper argues that both of these views, when taken to their extreme, are misguided. First, if corporations are not permitted to engage in CSR, then all social responsibility functions devolve on the state. Both taxing and spending become, to use Milton Friedman's language, purely governmental functions. But if corporate managers are required to minimize tax payments as much as possible, that could mean that the state is left without adequate resources to fulfill its governmental function. Thus, the aggregate view of the corporation, taken to its logical extreme, is self-defeating, because it could mean that neither corporations nor the government can fulfill their responsibilities to society. That is not an acceptable outcome. Second, even if from the perspective of management CSR is an illegitimate tax on shareholders, the government could still legitimately try to encourage corporations to engage in CSR by giving tax incentives. Assuming that some CSR activities are better performed by the private sector than by the government, it seems acceptable for the government to refrain from collecting certain amounts of tax in order to incentivize the private sector to engage in those activities. This is just as legitimate as the government taxing and then using is procurement muscle (paid for by the taxes) to encourage corporations to engage in CSR, as many governments have recently done.

Keywords: Corporate social responsibility, corporate tax, tax shelters

JEL Classification: H25

Suggested Citation

Avi-Yonah, Reuven S., Taxation, Corporate Social Responsibility and the Business Enterprise (July 29, 2009). CLPE Research Paper No. 19/2009, Available at SSRN: or

Reuven S. Avi-Yonah (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4033 (Phone)

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