The effect of tax transparency on consumer and firm behavior: Experimental evidence

Michael Razen and Alexander Kupfer

Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), 2023, vol. 104, issue C

Abstract: Tax avoidance among large multinational corporations has considerably increased in recent years, triggering an intense discussion about how to ensure that all pay their ‘fair share’. We propose a novel experimental design to incentive-compatibly model the firm-consumer relationship in a consumer goods market. This new paradigm allows us to analyze the effect of increased tax transparency on consumer and firm behavior in a dynamic framework. We find that absent the threat of being directly exposed as a tax avoiding firm, only 26% of the firms decide to pay taxes. Once tax avoiding firms are identifiable in the market, this rate rises to 58%. Providing market participants additionally with information about the social costs of tax avoidance increases the fraction of tax paying firms further to 74%. We observe that these improvements are the consequence of firms proactively deciding to pay taxes. At the highest level of transparency, we further observe that consumers show a stronger proclivity to boycott tax avoiding firms, even if these firms offer cheaper prices.

Keywords: Economic experiment; Public good dilemma; Corporate tax avoidance; Consumer behavior; Firm behavior (search for similar items in EconPapers)
JEL-codes: C9 C92 H26 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:soceco:v:104:y:2023:i:c:s2214804323000162

DOI: 10.1016/j.socec.2023.101990

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