Judge Ideology and Corporate Tax Planning

66 Pages Posted: 27 Jan 2020 Last revised: 20 Oct 2020

See all articles by Travis Chow

Travis Chow

The University of Hong Kong

Allen Huang

Hong Kong University of Science and Technology - Department of Accounting

Kai Wai Hui

The University of Hong Kong (HKU) - Department of Accounting

Terry J. Shevlin

University of California-Irvine

Date Written: October 15, 2020

Abstract

We investigate whether and how the federal judiciary affects corporate tax planning. We find that firms engage in less aggressive tax planning when Circuit Court and Tax Court judges are more liberal. This effect is economically significant and robust across various measures of tax planning. We further detail specific tax planning tactics in response to liberal judge ideology, such as shifting less income overseas, conducting more foreign tax planning, and acquiring more auditor-provided tax services. Firms also avoid liberal judges through forum shopping. Finally, we show that IRS enforcement complements the judge ideology effect. Overall, we are the first to study the relation between the judicial branch and corporate tax planning, which paints the picture of how the three branches of government jointly influence corporate taxation.

Keywords: Judge ideology, federal judiciary, tax planning, income shifting, forum shopping, Internal Revenue Service

JEL Classification: H25, H26, K34, K41, K42

Suggested Citation

Chow, Travis and Huang, Allen and Hui, Kai Wai and Shevlin, Terry J., Judge Ideology and Corporate Tax Planning (October 15, 2020). Available at SSRN: https://ssrn.com/abstract=3513154 or http://dx.doi.org/10.2139/ssrn.3513154

Travis Chow

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

Allen Huang (Contact Author)

Hong Kong University of Science and Technology - Department of Accounting ( email )

LSK Business School Building
HKUST
Clear Water Bay, Kowloon
Hong Kong
+852-23587559 (Phone)

HOME PAGE: http://www.AllenHuang.org

Kai Wai Hui

The University of Hong Kong (HKU) - Department of Accounting ( email )

Pokfulam Road
Hong Kong, Pokfulam
Hong Kong

Terry J. Shevlin

University of California-Irvine ( email )

Paul Merage School of Business
Irvine, CA California 92697-3125
United States
2065509891 (Phone)

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