Research

We investigate whether international income-shifting aggressiveness affects local investments. We predict firms that aggressively shift income will make affiliate-level investment decisions less influenced by local investment opportunities than firms that do not aggressively shift income. Results suggest firm-years with below-median income-shifting aggressiveness exhibit a typical responsiveness of local investments to investment opportunities, but firm-years with above-median income-shifting aggressiveness exhibit no statistical relation.

Research on the determinants of tax avoidance have relied on tests using GAAP and cash effective tax rates (ETRs) and total and permanent book‐tax differences. Two new proxies have emerged that overcome documented limitations of these proxies. We offer empirical evidence on how well tests using these new proxies perform relative to those extensively used in prior research.

This study uses a confidential data set of firms assigned to the Internal Revenue Service's Coordinated Industry Case (CIC) program to examine the effect of audit certainty on firms' tax reporting behavior.

Our study evaluates the role of coordination, at both the government and the firm level, on the transfer prices set by U.S. multinational corporations (MNCs) when income taxes and duties cannot be jointly minimized with a single transfer price.

Much empirical evidence is consistent with properly incentivized executives engaging in more tax avoidance. However, other studies provide evidence consistent with tax avoidance facilitating managerial rent extraction. We address these mixed results by reexamining the negative relation between executives' equity compensation and tax avoidance that is concentrated in firms with weaker shareholder rights. Our results suggest tax exhaustion is a more compelling explanation for the relation between executives' equity compensation and tax avoidance.

Income shifting from high-tax to low-tax jurisdictions is considered a primary method of reducing worldwide tax burdens of multinational firms. Current losses also affect income shifting incentives. We extend prior approaches by explicitly considering unprofitable affiliates and test whether the association between losses and tax incentives for unprofitable affiliates deviates from the negative association observed in profitable affiliates.

This study investigates the circumstances under which ‘‘enhanced relationship’’ tax-compliance programs are mutually beneficial to taxpayers and tax authorities, as well as how these benefits are shared. We develop a model of taxpayer and tax authority behavior inside and outside of an enhanced relationship program. Our model suggests that, despite the adversarial nature of the relationship, an enhanced relationship program is mutually beneficial in many settings.

A firm’s deferred tax position can influence how it is affected by a transition from one tax regime to another. Recognizing these divergent incentives is important for understanding the political economy of corporate tax reform.