How Do Corporate Tax Rates Alter Conforming Tax Avoidance?

Posted: 15 Feb 2020 Last revised: 20 Jun 2022

See all articles by Sebastian Eichfelder

Sebastian Eichfelder

Otto-von-Guericke-Universität Magdeburg

Martin Jacob

WHU - Otto Beisheim School of Management

Nadine Kalbitz

affiliation not provided to SSRN

Kelly Wentland

George Mason University - Department of Accounting

Date Written: June 17, 2022

Abstract

We examine an international panel of firms to quantify the degree to which conforming tax avoidance changes with statutory tax rates and how book-tax conformity alters such tax-induced earnings management. Methodologically, we derive an estimation method that identifies conforming tax avoidance from the variation of tax rates over time and across countries. Overall, the results show robust evidence of substantial conforming tax avoidance in response to changing statutory tax rates. Specifically, we find a 10-percentage point increase in the corporate tax rate relates to an 8.2 percent lower pre-tax book income. Further, we show that the response persists for at least two years following that tax rate change. We also document circumstances where responses to rate changes are stronger, finding a more pronounced effect when a country switches from having a low to high degree of conformity between book and tax reporting. This result underscores the role of book-tax conformity for a firm’s tax planning strategies.

Keywords: conforming tax avoidance, tax avoidance, international tax, book-tax conformity

JEL Classification: H25, H26

Suggested Citation

Eichfelder, Sebastian and Jacob, Martin and Kalbitz, Nadine and Wentland, Kelly, How Do Corporate Tax Rates Alter Conforming Tax Avoidance? (June 17, 2022). Available at SSRN: https://ssrn.com/abstract=3523388 or http://dx.doi.org/10.2139/ssrn.3523388

Sebastian Eichfelder (Contact Author)

Otto-von-Guericke-Universität Magdeburg ( email )

Universitätspl. 2
PSF 4120
Magdeburg, D-39106
Germany
0391-67-18811 (Phone)

Martin Jacob

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
D-56179 Vallendar, 56179
Germany

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

Nadine Kalbitz

affiliation not provided to SSRN

Kelly Wentland

George Mason University - Department of Accounting

Fairfax, VA
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
908
PlumX Metrics