The Intended and Unintended Deterrence Effects of Tax Whistleblower Laws: Evidence From New York’s FCA

52 Pages Posted: 18 Sep 2022

See all articles by Yoojin Lee

Yoojin Lee

California State University, Long Beach

Shaphan Ng

Singapore Management University - School of Accountancy

Terry J. Shevlin

University of California-Irvine; University of California-Irvine

Aruhn Venkat

McCombs School of Business, University of Texas at Austin

Date Written: August 31, 2022

Abstract

In this study, we provide evidence on the deterrence effects of state tax whistleblower laws. We exploit a novel 2010 amendment to New York’s False Claims Acts that explicitly extended whistleblower incentives to corporate income tax whistleblowers. We identify treated firms (firms exposed to New York’s FCA) using establishment-level data and descriptive analyses. Using a traditional difference-in-differences design, we find evidence that New York’s FCA reduced state tax avoidance, consistent with deterrence benefits. In cross-sectional tests, we find that effects are increasing in firms that grant fewer employee stock options and industry regulation, consistent with deterrence increasing in employee and regulator monitoring. We also find evidence that New York’s FCA deterred federal tax avoidance, consistent with positive vertical tax externalities. Next, we focus on particular tax strategies and find evidence of reduced probability of Double Irish tax structures, reduced relationships to tax planning banks, reduced use of special purpose vehicles and reduced outbound tax-motivated income shifting. Finally, we disentangle ex ante deterrence from ex post peer deterrence using hand-collected New York tax whistleblower press releases from the Attorney General. We find evidence of both types of deterrence. Overall, this study provides policy-relevant evidence on the deterrence benefits and externalities of tax whistleblower laws.

Keywords: State tax whistleblower protections, FCAs, deterrence effect, spillover effect, tax externalities, tax avoidance

Suggested Citation

Lee, Yoojin and Ng, Shaphan and Shevlin, Terry J. and Shevlin, Terry J. and Venkat, Aruhn, The Intended and Unintended Deterrence Effects of Tax Whistleblower Laws: Evidence From New York’s FCA (August 31, 2022). Available at SSRN: https://ssrn.com/abstract=4207078 or http://dx.doi.org/10.2139/ssrn.4207078

Yoojin Lee (Contact Author)

California State University, Long Beach ( email )

1250 Bellflower Blvd
Long Beach, CA 90064
United States

Shaphan Ng

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

Terry J. Shevlin

University of California-Irvine ( email )

Paul Merage School of Business
Irvine, CA 92697-3125
United States
949-824-6149 (Phone)

University of California-Irvine ( email )

Paul Merage School of Business
Irvine, CA California 92697-3125
United States
2065509891 (Phone)

Aruhn Venkat

McCombs School of Business, University of Texas at Austin ( email )

2110 Speedway
Austin, TX 78705
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
144
Abstract Views
667
Rank
360,388
PlumX Metrics