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Can increased tax transparency curb corporate tax avoidance?

Michael Razen () and Alexander Kupfer ()

Working Papers from Faculty of Economics and Statistics, University of Innsbruck

Abstract: Tax avoidance among large multinational corporations has considerably increased in recent years, triggering an intense discussion about how to ensure tax justice. 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 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 show that these improvements are the consequence of firms proactively adopting tax responsible behavior and, at the highest level of transparency, consumers showing a stronger proclivity to boycott tax avoiding firms, even if these firms offer cheaper prices. Our results confirm the effectiveness of increased transparency to curb corporate tax avoidance.

Keywords: economic experiment; tax avoidance; public good dilemma; consumer behavior; firm behavior (search for similar items in EconPapers)
JEL-codes: C9 C92 H26 (search for similar items in EconPapers)
Pages: 32
Date: 2021-10
New Economics Papers: this item is included in nep-pbe
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