Corporate Taxes and Corporate Social Responsibility
66 Pages Posted: 29 Sep 2020 Last revised: 19 Nov 2023
Date Written: October 8, 2023
Exploiting staggered changes in state-level corporate income taxes, 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
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