Corporate Political Contributions and Tax Avoidance

48 Pages Posted: 3 Mar 2014 Last revised: 20 Jan 2018

See all articles by Zhenhua Chen

Zhenhua Chen

University of San Diego School of Business

Scott Dyreng

Duke University - Accounting

Bin Li

University of Oklahoma - Michael F. Price College of Business

Date Written: January 9, 2018

Abstract

In this study we examine the channels through which corporate political contributions affect firm-level tax outcomes. Firms that make political contributions are more likely than other firms to be singled out in rifle-shot tax legislation and receive firm-specific tax relief. Firms also receive tax benefits when members of their industry cohort make political contributions, regardless of the firm’s own political contributions, consistent with politicians taking actions that benefit an entire class of assets or type of investment. Finally, we find some evidence that political connections affect tax enforcement, resulting in lower tax burdens for politically active firms.

Keywords: Political contribution; Rifle-shot provision; Tax avoidance; Tax enforcement

JEL Classification: M41, H25, D72, G28

Suggested Citation

Chen, Zhenhua and Dyreng, Scott and Li, Bin, Corporate Political Contributions and Tax Avoidance (January 9, 2018). 2014 American Taxation Association Midyear Meeting. Available at SSRN: https://ssrn.com/abstract=2403918 or http://dx.doi.org/10.2139/ssrn.2403918

Zhenhua Chen (Contact Author)

University of San Diego School of Business ( email )

223 Olin Hall
5998 Alcalá Park
San Diego, CA
United States

Scott Dyreng

Duke University - Accounting ( email )

Box 90120, Fuqua School of Business
Durham, NC 27708-0120
United States

Bin Li

University of Oklahoma - Michael F. Price College of Business ( email )

307 West Brooks
Norman, OK 73019-4004
United States

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