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Exploring the Role Delaware Plays as a Domestic Tax Haven

Scott Dyreng

Duke University

Bradley P. Lindsey

North Carolina State University

Jacob R. Thornock

Brigham Young University

Sept 24, 2012

Journal of Financial Economics (JFE), Forthcoming

Offshore tax havens, such as the Cayman Islands, have been shown to facilitate corporate tax avoidance. However, academic research has overlooked the possibility that the state of Delaware could serve a similar role domestically. We find that tax factors play an important role in determining where to locate subsidiaries and that these factors are economically larger than the legal and governance factors that are typically considered important determinants of incorporation decisions. In addition, the tax savings of placing subsidiaries in the state of Delaware are economically meaningful. For firms that appear to engage in tax strategies involving Delaware, we find a reduction in the state effective tax rate of approximately 1.5 percentage points, which is similar in magnitude to the tax savings of having foreign haven operations. Our results are consistent with Delaware serving as a domestic haven against state corporate taxation.

Number of Pages in PDF File: 48

Keywords: Delaware, Tax Haven, Tax Law, Tax Aggressiveness, Corporate Governance

JEL Classification: G38, H25, H71, K22

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Date posted: January 12, 2011 ; Last revised: April 11, 2013

Suggested Citation

Dyreng, Scott and Lindsey, Bradley P. and Thornock, Jacob R., Exploring the Role Delaware Plays as a Domestic Tax Haven (Sept 24, 2012). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1737937 or http://dx.doi.org/10.2139/ssrn.1737937

Contact Information

Scott Dyreng
Duke University ( email )
Box 90120, Fuqua School of Business
Durham, NC 27708-0120
United States
Bradley P. Lindsey (Contact Author)
North Carolina State University ( email )
Campus Box 8113
3152 Nelson Hall
Raleigh, NC 27695-8113
United States
919-515-4434 (Phone)
919-515-4446 (Fax)
Jacob Thornock
Brigham Young University ( email )
Provo, UT 84602
United States
8014220828 (Phone)
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