Tax Incidence and Tax Avoidance

77 Pages Posted: 15 Nov 2017 Last revised: 5 Aug 2020

See all articles by Scott Dyreng

Scott Dyreng

Duke University - Accounting

Martin Jacob

WHU - Otto Beisheim School of Management

Xu Jiang

Duke University

Maximilian A. Müller

ESMT Berlin

Date Written: June 12, 2020

Abstract

Economists broadly agree that the economic burden of corporate taxes is not entirely borne by shareholders, but also borne in part by employees or consumers. We model corporate tax avoidance in a setting where shareholders do not bear the entire economic burden of the corporate tax. We show the relation between corporate tax incidence and corporate tax avoidance depends on the elasticity of labor supply, the productivity of capital relative to labor, and the tax deductibility of labor and capital. These forces have competing effects, making the association between tax avoidance and incidence an empirical question. Empirically, we find that firms whose shareholders bear less of the economic burden of corporate taxes engage in less avoidance, and that the results are strongest under conditions predicted by our model. Our findings suggest that maximizing after-tax profits might entail less tax avoidance if shareholders do not entirely bear the corporate tax burden.

Keywords: Tax Avoidance, Tax Burden, Tax Incidence

JEL Classification: H20, H25

Suggested Citation

Dyreng, Scott and Jacob, Martin and Jiang, Xu and Müller, Maximilian A., Tax Incidence and Tax Avoidance (June 12, 2020). Available at SSRN: https://ssrn.com/abstract=3070239 or http://dx.doi.org/10.2139/ssrn.3070239

Scott Dyreng (Contact Author)

Duke University - Accounting ( 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 A. Müller

ESMT Berlin ( email )

Schlossplatz 1
Berlin, 10178
Germany

HOME PAGE: http://faculty-research.esmt.berlin/person/maximilian-muller/bio

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