Exploring the role Delaware plays as a domestic tax haven

Scott D. Dyreng, Bradley P. Lindsey and Jacob R. Thornock

Journal of Financial Economics, 2013, vol. 108, issue 3, 751-772

Abstract: We examine whether Delaware is a domestic tax haven. We find that taxes play an economically important role in determining whether U.S. firms locate subsidiaries in Delaware and that a Delaware-based state tax avoidance strategy lowers state effective tax rates by between 0.7 and 1.1 percentage points, on average. The tax savings represent a 15–24% decrease in the state income tax burden and translate to an increase in net income of 1.04–1.47%. However, we find that the tax benefits of Delaware tax strategies are diminishing over time in response to initiatives by state governments to limit multistate tax avoidance.

Keywords: Delaware; Tax haven; Corporate governance; Corporate tax avoidance (search for similar items in EconPapers)
JEL-codes: G38 H25 H71 K22 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (82)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:108:y:2013:i:3:p:751-772

DOI: 10.1016/j.jfineco.2013.01.004

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