Religiosity and Tax Avoidance
Jeff P. Boone
University of Texas at San Antonio - Department of Accounting
Inder K. Khurana
University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business
K. K. Raman
University of Texas at San Antonio
October 19, 2012
Journal of American Taxation Association, Spring 2013, 35(1): 53-84.
In this paper, we examine religiosity as one determinant of tax avoidance by corporate and individual taxpayers. Prior research suggests a relation between religiosity and risk aversion. Because aggressive tax avoidance strategies involve significant uncertainty and possible penalties and damage to reputation, we predict that higher levels of religiosity are associated with less aggressive (i.e., less risky) tax positions. Consistent with this prediction, we find that firms headquartered in more religious US counties are less likely to avoid taxes. We also find that religiosity is consistently associated with lower tax avoidance by individual taxpayers as measured by underreported income. These results hold after controlling for several firm-level as well as county-level demographic characteristics identified in prior research as affecting tax avoidance by corporate and/or individual taxpayers. We conclude that religiosity is a significant determinant of tax avoidance by corporate and individual taxpayers.
Keywords: Tax avoidance, Religiosity
JEL Classification: M41
Date posted: October 20, 2012 ; Last revised: March 25, 2013