The Deterrence Effects of Tax Whistleblower Laws: Evidence from New York’s False Claims Acts

Yoojin Lee (), Shaphan Ng (), Terry Shevlin () and Aruhn Venkat ()
Additional contact information
Yoojin Lee: College of Business, California State University, Long Beach, California 90840
Shaphan Ng: School of Accountancy, Singapore Management University, Singapore 178900
Terry Shevlin: Paul Merage School of Business, University of California, Irvine, California 92697; and Foster School of Business, University of Washington, Seattle, Washington 98195
Aruhn Venkat: McCombs School of Business, University of Texas, Austin, Texas 78712

Management Science, 2025, vol. 71, issue 5, 3688-3712

Abstract: In this study, we provide evidence on the effects of state tax whistleblower laws. We exploit a novel 2010 amendment to New York’s False Claims Acts (FCA) that explicitly extended whistleblower incentives to corporate income tax whistleblowers. We identify treated firms (firms exposed to New York’s FCA) using establishment-level data and descriptive analyses. Using a sample of firms exposed to New York and neighboring states, we find evidence that New York’s FCA reduced state tax avoidance. In cross-sectional tests, we find that effects are increasing in firms that grant fewer employee stock options and industry regulation, consistent with deterrence increasing in employee and regulator monitoring. We also find evidence that New York’s FCA deterred federal tax avoidance, consistent with positive vertical tax externalities. Next, we focus on particular tax strategies and find evidence of a reduced probability of Double Irish tax structures, reduced relationships to tax planning banks, reduced use of special purpose vehicles, and reduced outbound tax-motivated income shifting. We also find evidence that firms with the lowest (highest) cost of relocation (1) reduced (did not change) establishment counts in New York but (2) did not change (reduced) state tax avoidance. Finally, we disentangle general ex ante deterrence from ex ante peer deterrence using hand-collected New York tax whistleblower press releases from the Attorney General. We find evidence of both types of deterrence. Overall, this study provides policy-relevant evidence on the deterrence effects of tax whistleblower laws.

Keywords: state tax whistleblower protections; New York’s FCA; deterrence effect; tax externalities; tax avoidance (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2023.02999 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:71:y:2025:i:5:p:3688-3712

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().