Corporate Taxes and Corporate Social Responsibility

Exploiting staggered changes in state-level corporate income tax rates, we document that corporate social responsibility (CSR) performance improves substantially following tax cuts, reflecting firms’ reliance on internal funds for CSR investments. However, tax increases do not significantly weaken CSR performance, implying that CSR commitments are sticky on the upside. Tax cuts enhance CSR performance more for firms with greater tax exposure, tighter financial constraints, or stronger prosocial preferences. Additional analysis of the 2017 federal tax reform substantiates the CSR effect of tax cuts. Overall, our findings highlight essential CSR features and illustrate how corporate tax policy drives corporate sustainability.

Keywords: corporate income taxes, corporate social responsibility (CSR), ESG, sustainability, fiscal policy

JEL Classification: H25, G30, G38, M14

Suggested Citation: Suggested Citation

Chang, Xin and Jin, Yaling and Yang, Endong and Zhang, Wenrui, Corporate Taxes and Corporate Social Responsibility (December 17, 2022). Nanyang Business School Research Paper No. 20-18, Available at SSRN: https://ssrn.com/abstract=3694203 or http://dx.doi.org/10.2139/ssrn.3694203