Does labor unemployment insurance affect corporate tax aggressiveness?

Erik Devos and Shofiqur Rahman

International Review of Financial Analysis, 2023, vol. 90, issue C

Abstract: This paper examines the effect of unemployment insurance benefits (UIB) on corporate tax aggressiveness. Given that aggressive tax avoidance is risky and costly for the firm and its employees, we argue that low state UIB increases workers' exposure to unemployment risk and, hence, influences firms' tax strategies. Our results show a positive relation between tax aggressiveness and UIB. We also find that this relation is more pronounced for firms in industries that are more labor-intensive and firms with high financial constraints and less pronounced for firms in industries with high labor bargaining power.

Keywords: Unemployment risk; Compensating wage differentials; Unemployment insurance benefit; Tax aggressiveness (search for similar items in EconPapers)
JEL-codes: H25 J31 J65 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:90:y:2023:i:c:s1057521923004337

DOI: 10.1016/j.irfa.2023.102917

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