Public Tax Disclosures and Fair Share Perceptions

Abstract

To reveal whether firms pay their fair share of taxes, regulators increasingly mandate public tax
disclosures. Such disclosures are often assumed to raise awareness and scrutiny of firms’ tax
aggressiveness and should thus help stakeholders identify aggressive tax avoiders. We conducted
two experiments to test this assumption. The first experiment indicate that stakeholders become
worse at identifying aggressive tax avoiders when public disclosures focus on bottom-line tax
numbers. The reason is that stakeholders use such disclosures as a heuristic for a firm’s tax
aggressiveness and are reluctant to acquire complementary, more detailed tax information. The
results of the second experiment demonstrate that policies to counteract the adverse effects of
public tax disclosures (i.e., a disclaimer, more detailed public tax information, and country-by-country reporting) are helpful but none can achieve the actual policy goal of improved
identification of aggressive tax avoiders.

Keywords: public tax disclosure, corporate taxation, tax transparency

JEL Classification: C91, H26, M48