The Morality of Tax Avoidance: Evidence from Felony Larceny Thresholds

Abstract

We investigate whether managers consider tax avoidance to be a moral decision. Motivated by research arguing that laws can influence a society's moral values, we investigate changes in tax avoidance after legislators increase felony larceny thresholds. We hypothesize that if these laws increase societal tolerance of misconduct, managers may be more willing to engage in controversial behavior like tax avoidance. Utilizing the fact that states have increased larceny thresholds at different points in time, we show increased tax avoidance after firms' headquarters states raise felony larceny thresholds, suggesting that moral attitudes play an important role in corporate tax avoidance.

JEL Classification: H26, H20, M4, M41, K1, K14