Real Effects of the Enforcement of Anti-Avoidance Rules

35 Pages Posted: 9 Feb 2023 Last revised: 26 Sep 2023

See all articles by Rebecca Reineke

Rebecca Reineke

Leibniz Universität Hannover

Katrin Weiskirchner-Merten

Vienna University of Economics and Business - Department of Finance, Accounting & Statistics

Stefan Wielenberg

Leibniz Universität Hannover

Date Written: September 22, 2023

Abstract

We examine, in a game-theoretic model, how anti-avoidance rules and a strategic tax auditor affect a firm’s investment and tax-avoidance incentives. Our model investigates a firm that decides on a lump-sum investment and tax avoidance. In contrast to previous theoretical studies, our analysis incorporates a strategic tax auditor, who observes the firm’s investment decision, pre-tax profit, and tax rate, and decides whether to audit. Our analysis identifies the equilibria and examines how tax system variations—the strictness of the anti-avoidance rules, settlement, and tax auditor incentives—affect the firm’s tax avoidance. We find that the strategic tax auditor may lead to underinvestment that becomes either more or less severe for stricter anti-avoidance rules. These equilibrium results generate predictions for empirical studies on tax avoidance.

Keywords: tax avoidance, investment, real effects, strategic tax auditor

JEL Classification: H26, H87, M42

Suggested Citation

Reineke, Rebecca and Weiskirchner-Merten, Katrin and Wielenberg, Stefan, Real Effects of the Enforcement of Anti-Avoidance Rules (September 22, 2023). WU International Taxation Research Paper Series No. 2023-01, Available at SSRN: https://ssrn.com/abstract=4352522 or http://dx.doi.org/10.2139/ssrn.4352522

Rebecca Reineke (Contact Author)

Leibniz Universität Hannover ( email )

Welfengarten 1
D-30167 Hannover, 30167
Germany

Katrin Weiskirchner-Merten

Vienna University of Economics and Business - Department of Finance, Accounting & Statistics ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Stefan Wielenberg

Leibniz Universität Hannover ( email )

Institut fur Rechnungslegung und WP
Koenigsworther Platz 1
Hannover, 30167
Germany

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