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

48 Pages Posted: 7 Dec 2021

See all articles by Enrique Fatas

Enrique Fatas

University of Pennsylvania - School of Arts & Sciences; Universidad ICESI

Antonio J Morales

University of Malaga - Departamento de Teoría e Historia Económics; University of Valencia - Laboratory for Research in Experimental Economics (LINEEX)

Axel Sonntag

University of Vienna - Vienna Center for Experimental Economics

Date Written: October 2021

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

Suggested Citation

Fatas, Enrique and Morales, Antonio J and Sonntag, Axel, Expelled from (Tax) Heaven: Empowering consumers to reduce corporate tax avoidance (October 2021). Available at SSRN: https://ssrn.com/abstract=3978834 or http://dx.doi.org/10.2139/ssrn.3978834

Enrique Fatas (Contact Author)

University of Pennsylvania - School of Arts & Sciences ( email )

Philadelphia, PA 19104
United States

Universidad ICESI ( email )

Calle 18 #122-135
A.A. 25608
Cali
Colombia

Antonio J Morales

University of Malaga - Departamento de Teoría e Historia Económics ( email )

Facultad de Ciencias Económicas y Empresariales
Campus de El Ejido
Málaga, Málaga 29071
Spain

University of Valencia - Laboratory for Research in Experimental Economics (LINEEX) ( email )

46022 Valencia
Spain

Axel Sonntag

University of Vienna - Vienna Center for Experimental Economics ( email )

Oskar-Morgenstern-Platz 1
Vienna, Vienna 1090
Austria

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