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Tax Avoidance and Tax Incidence

49 Pages Posted: 15 Nov 2017  

Scott Dyreng

Duke University

Martin Jacob

WHU - Otto Beisheim School of Management

Xu Jiang

Duke University

Maximilian A. Müller

WHU - Otto Beisheim School of Management

Date Written: November 13, 2017

Abstract

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

Dyreng, Scott and Jacob, Martin and Jiang, Xu and Müller, Maximilian A., Tax Avoidance and Tax Incidence (November 13, 2017). Available at SSRN: https://ssrn.com/abstract=3070239

Scott Dyreng (Contact Author)

Duke University ( email )

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

Martin Jacob

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
D-56179 Vallendar, 56179
Germany

HOME PAGE: http://www.whu.edu/steuer

Xu Jiang

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Maximilian Müller

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

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