Tax Incidence and Tax Avoidance

63 Pages Posted: 15 Nov 2017 Last revised: 20 Jul 2018

See all articles by Scott Dyreng

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: July 2

Abstract

Economists broadly agree that the economic burden of corporate taxes is not entirely borne by shareholders, but also borne in part by workers or consumers. We theoretically examine corporate tax avoidance in a setting where shareholders do not bear the entire economic burden of the corporate tax. We show that the relation between corporate tax avoidance and the share of the tax burden borne by shareholders is ambiguous, but we derive several testable predictions and their conditions. Using empirical analyses, we find that firms whose shareholders bear less of the economic burden of corporate income taxes engage in less tax avoidance than other firms, 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 economic burden of the corporate tax.

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 (July 2). Available at SSRN: https://ssrn.com/abstract=3070239 or http://dx.doi.org/10.2139/ssrn.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 A. Müller

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

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