Corporate Tax Enforcement and Business Activity

Year: 2024 (forthcoming)
Type: Journal Publication
Journal: The Accounting Review

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.

 

Participating Institutions

TRR 266‘s main locations are Paderborn University (Coordinating University), HU Berlin, and University of Mannheim. All three locations have been centers for accounting and tax research for many years. They are joined by researchers from LMU Munich, Frankfurt School of Finance and Management, Goethe University Frankfurt, University of Cologne and Leibniz University Hannover who share the same research agenda.

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