Importing Corruption Culture from Overseas: Evidence from Corporate Tax Evasion in the United States
Indiana University School of Public & Environmental Affairs Research Paper No. 2011-10-01
51 Pages Posted: 10 Oct 2011 Last revised: 29 May 2012
Date Written: January 17, 2012
This paper studies how cultural norms and enforcement policies influence illicit corporate activities. Using confidential IRS audit data, we show that corporations with owners from countries with higher corruption norms engage in higher amounts of tax evasion in the U.S. This effect is strong for small corporations and decreases as the size of the corporation increases. In the mid-2000s, the United States implemented several enforcement measures which significantly increased tax compliance. However, we find that these enforcement efforts were less effective in reducing tax evasion by corporations whose owners are from countries with higher corruption norms. This suggests that cultural norms can be a challenge to legal enforcement.
Keywords: tax evasion, corruption, norms, legal enforcement
JEL Classification: H26, M14, D73
Suggested Citation: Suggested Citation