Expelled from (Tax) Heaven: Empowering consumers to reduce corporate tax avoidance

Abstract

We analyse corporate tax avoidance in a stylized experimental Bertrand setting with
homogenous products and symmetric firms and consumers. More specifically, we investigate how market size and information disclosure of firms’ tax avoidance behaviour could reduce corporate tax avoidance. We find that making corporate tax behaviour more transparent by
imposing a tax rating, makes consumers actively and costly boycott firms that do not pay their
taxes. Firms anticipate consumer boycotts and increase their tax payments accordingly. When
rating disclosure is voluntary, the positive effect on corporate tax compliance vanishes in large
markets.

Keywords: tax avoidance, policy measure, tax rating, transparency, lab experiment

JEL Classification: H26, C92, D78, D82, L15