An examination of firms’ responses to tax forgiveness

Terry Shevlin (), Jacob Thornock () and Braden Williams ()
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Terry Shevlin: University of California – Irvine
Jacob Thornock: Brigham Young University
Braden Williams: University of Texas at Austin

Review of Accounting Studies, 2017, vol. 22, issue 2, No 3, 577-607

Abstract: Abstract This study uses state tax amnesties to examine how firms respond to forgiveness—particularly repeated forgiveness—by a taxing authority. We posit that tax forgiveness programs alter taxpayer perceptions of the probability of detection by enforcers or the probability of future forgiveness programs, either of which could affect future tax aggressiveness. We find that firms headquartered in an amnesty-granting state increase state income tax aggressiveness following the first instance of tax amnesty, relative to control firms in other states. Moreover, we find evidence that tax aggressiveness incrementally increases with each additional repetition of a tax amnesty. Finally, we find that the effect of amnesties on tax aggressiveness is more prominent for small firms, which face less scrutiny and for which the tax aggressiveness measures are less confounded. Our findings suggest that repeated programs of tax forgiveness have increasingly negative implications for corporate tax collections.

Keywords: Tax amnesty; Tax forgiveness; Tax avoidance; State taxation; Effective tax rate (search for similar items in EconPapers)
JEL-codes: H25 H26 H71 K34 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s11142-017-9390-6

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