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Empowering consumers to reduce corporate tax avoidance: Theory and Experiments

Enrique Fatas, Antonio Morales () and Axel Sonntag
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Enrique Fatas: Center for Social Norms and Behavioral Dynamics, University of Pennsylvania and School of Management, Universidad ICESI
Axel Sonntag: Institute for Advanced Studies Vienna and Vienna Center for Experimental Economics, University of Vienna

No 21, IHS Working Paper Series from Institute for Advanced Studies

Abstract: We analyze corporate tax avoidance in a theoretical model and in a stylized experimental Bertrand setting in which symmetric firms and consumers sell and buy a homogeneous product, when human participants make decisions as firms and consumers. We investigate how market power and information disclosure of firms’ tax avoidance behavior impacts corporate tax avoidance and market competition. By imposing a tax rating, corporate tax behavior becomes more transparent, and consumers actively and costly boycott firms that do not pay their taxes. Firms adapt and anticipate consumer boycotts and increase tax payments, and prices. When rating disclosure is voluntary, the positive effect on corporate tax compliance vanishes in large markets.

Keywords: tax avoidance; policy measure; tax rating; transparency; lab experiment (search for similar items in EconPapers)
JEL-codes: C92 D78 D82 H26 L15 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2020-08
New Economics Papers: this item is included in nep-com, nep-exp, nep-iue and nep-pbe
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