No. 175: What Drives the Use of Aggressive Conforming and Nonconforming Tax Avoidance Strategies? New Evidence on the Tax Strategies’ Substitutive Relationship

Using unique tax audit data of 499 German firms, we analyze whether family firms, public firms, financially constrained firms, and those firms with managers with low tax morale substitute two tax strategies, book-tax conforming and nonconforming tax avoidance strategies, and examine the effect on overall tax avoidance. The empirical results are in line with family firms and those firms with low tax morale managers substituting conforming for nonconforming tax avoidance strategies, whereas public and financially constrained firms do the opposite. Moreover, we find that family firms differ from nonfamily firms only in their strategic implementation but not in the overall amount of tax avoidance. With respect to public, financially constrained firms and those firms with low tax morale managers, we find a positive association with the total level of tax avoidance.