Tax Boycotts

Abstract

To what extent do consumers boycott in response to corporate tax planning? Anecdotes suggest consumer boycotts are a meaningful deterrent to tax planning, but empirical evidence on their frequency and impact is lacking. We undertake a comprehensive study to examine how consumers’ purchase behavior relates to corporate tax planning. First, we survey a representative sample of U.S. consumers and find that more than a third of survey participants report having boycotted a firm, but zero report having done so for taxes. Next, we use a granular dataset of nationwide Nielsen weekly purchase transactions to analyze consumer purchase behavior around corporate tax planning news events. Across a battery of tests, we find little evidence of changes in actual consumer purchase behavior in response to tax news. Finally, we conduct several supplementary analyses investigating the potential consumer responses related to a high-profile and salient tax event, ongoing tax-related boycott activity, and retail investors’ trading behavior. The combined evidence does not support tax boycotts as a meaningful response to corporate tax planning, despite managers’ expressed concerns of tarnished consumer reputations related to firms’ tax decisions.

Keywords: corporate tax planning, consumer boycotts, reputational effects of tax planning

JEL Classification: H25, M31, M41