Corporate Tax Enforcement and Business Activity

51 Pages Posted: 28 Sep 2022 Last revised: 10 Feb 2024

See all articles by John Gallemore

John Gallemore

University of North Carolina Kenan-Flagler Business School

Martin Jacob

University of Navarra, IESE Business School

Date Written: August 22, 2024

Abstract

We examine the consequences of corporate tax enforcement for business activity. Employing two different empirical approaches-a regional design and a firm-level design-we document that corporate tax enforcement is negatively associated with business activity, as measured by establishments and employment. This association is economically significant and is robust to tests that mitigate concerns regarding endogeneity and measurement. Furthermore, we find that the negative association between tax enforcement and business activity varies substantially in the cross-section. Specifically, we find that it is weaker for regions and firms with greater access to external financing sources, and is stronger for regions and firms where compliance costs are likely higher and for which the ex-ante costs of tax enforcement are greater. Our findings suggest that the effects of tax enforcement on business activity are economically important and heterogeneous, which should be of interest to academics and policymakers.

Keywords: corporate tax enforcement, business activity, local economies, employment, compliance costs JEL codes: H25, H26, R11, R12

JEL Classification: H25, H26, R11, R12

Suggested Citation

Gallemore, John and Jacob, Martin, Corporate Tax Enforcement and Business Activity (August 22, 2024). TRR 266 Accounting for Transparency Working Paper Series 154, Available at SSRN: https://ssrn.com/abstract=4226165 or http://dx.doi.org/10.2139/ssrn.4226165

John Gallemore (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

HOME PAGE: http://www.johngallemore.com

Martin Jacob

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

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