Does It Cost to Be Politically Connected? An Examination of the Grabbing Hand Hypothesis Using Corporate Taxes

38 Pages Posted: 4 Jun 2019

See all articles by Taufiq Arifin

Taufiq Arifin

Sebelas Maret University - Faculty of Economics and Business; University of Twente - Department of Finance & Accounting

Iftekhar Hasan

Fordham University - Gabelli School of Business; Bank of Finland

Rezaul Kabir

University of Twente - Department of Finance and Accounting

Date Written: May 1, 2019

Abstract

We study a channel through which politicians can use corporate taxes to extract firm’s resources. We find that politically-connected firms pay higher taxes than their non-connected counterparts. Using election as an exogenous shock, we also observe that politically-connected firms pay higher taxes during election years to support the incumbent political regime. The results of the study indicate that favorable economic indicators, e.g. government tax revenue, are important to politicians, and provide rent seeking incentive to achieve their political objective.

Keywords: Political connections, Corporate taxes, Elections

JEL Classification: D72, G34, M41

Suggested Citation

Arifin, Taufiq and Hasan, Iftekhar and Kabir, Rezaul, Does It Cost to Be Politically Connected? An Examination of the Grabbing Hand Hypothesis Using Corporate Taxes (May 1, 2019). Available at SSRN: https://ssrn.com/abstract=3389381 or http://dx.doi.org/10.2139/ssrn.3389381

Taufiq Arifin

Sebelas Maret University - Faculty of Economics and Business ( email )

Jl. Ir. Sutami 36 A
Surakarta, ID Jawa Tengah 57146
Indonesia

University of Twente - Department of Finance & Accounting

P.O.Box 217
7500 AE Enschede
Netherlands

Iftekhar Hasan

Fordham University - Gabelli School of Business ( email )

Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

Rezaul Kabir (Contact Author)

University of Twente - Department of Finance and Accounting ( email )

Faculty of Behavioral, Management & Social Science
P. O. Box 217
Enschede, 7500 AE
Netherlands
+31 53 489 4512 (Phone)
+31 53 489 2159 (Fax)

HOME PAGE: http://https://people.utwente.nl/r.kabir

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