Tax Avoidance and Tax Incidence
49 Pages Posted: 15 Nov 2017
Date Written: November 13, 2017
We examine corporate tax avoidance in a setting where shareholders might not bear the entire economic burden of the corporate tax because the firm’s market power allows it to pass the burden to workers or consumers. Depending on the model conditions, tax avoidance increases or decreases in market power. Using empirical analyses, we find that high market power firms avoid less tax than low market power firms. We also find empirical support for the model conditions underlying this result. Our findings suggest that firms with high market power report high tax rates but pass the tax burden to workers or consumers while maximizing after-tax profits.
Keywords: Tax Avoidance, Tax Burden, Tax Incidence, Undersheltering Puzzle
JEL Classification: H20, H25
Suggested Citation: Suggested Citation