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Why do not all firms engage in tax avoidance?

  • Empirical evidence suggests that there is substantial cross-firm variation in the extent of tax avoidance. However, this variation is not well understood. This paper provides a theoretical background for testing, and thus explaining, cross-firm differences in tax avoidance. We develop a formal model with two agents to analyze the incentives that lead firms to engage in tax avoidance. The tax avoidance decision is a function of moral hazard, tax-planning costs, and the potential to increase earnings. If the potential to increase earnings is low, the tax-planning decision is determined by moral-hazard problems. In contrast, when this potential is high, the tax-planning decision is mainly driven by taxplanning costs, such as reputational and political costs. One implication of our model is that moral hazard can (partly) explain why some firms do not engage in tax avoidance: Severe problems of moral hazard make tax avoidance less likely. Our model can be applied to test di� erences in tax avoidance between different types of firms.

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Metadaten
Author:Martin Jacob, Anna Rohlfing-Bastian, Kai Sandner
URN:urn:nbn:de:hbz:992-opus4-6582
DOI:https://doi.org/10.2139/ssrn.2536268
Series (Serial Number):FAccT Center Working Paper Series (20/2016)
Publisher:WHU - Otto Beisheim School of Management
Place of publication:Vallendar
Document Type:Working Paper
Language:English
Date of Publication (online):2018/06/10
Date of first Publication:2016/05/31
Release Date:2018/06/10
Tag:Fehlverhalten; Moralisches Handeln; Steuerplanung; Steuervermeidung
Acting ethically; Moral hazard; Tax avoidance; Tax planning
Page Number:47
Institutes:WHU Finance & Accounting Group / Chair of Business Taxation
Licence (German):Copyright for this publication