Review of Accounting Studies

, Volume 22, Issue 2, pp 577–607 | Cite as

An examination of firms’ responses to tax forgiveness

Article
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Abstract

This study uses state tax amnesties to examine how firms respond to forgiveness—particularly repeated forgiveness—by a taxing authority. We posit that tax forgiveness programs alter taxpayer perceptions of the probability of detection by enforcers or the probability of future forgiveness programs, either of which could affect future tax aggressiveness. We find that firms headquartered in an amnesty-granting state increase state income tax aggressiveness following the first instance of tax amnesty, relative to control firms in other states. Moreover, we find evidence that tax aggressiveness incrementally increases with each additional repetition of a tax amnesty. Finally, we find that the effect of amnesties on tax aggressiveness is more prominent for small firms, which face less scrutiny and for which the tax aggressiveness measures are less confounded. Our findings suggest that repeated programs of tax forgiveness have increasingly negative implications for corporate tax collections.

Keywords

Tax amnesty Tax forgiveness Tax avoidance State taxation Effective tax rate 

JEL classification

H25 H26 H71 K34 
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Notes

Acknowledgements

We are grateful to Richard Sloan (editor) and two anonymous referees for their constructive comments on this paper. We also thank Darren Bernard, Nicole Cade, Ed deHaan, Frank Hodge, Jeff Hoopes, David Kenchington, Landon Mauler, Ed Maydew, Lillian Mills, Adam Olson, Miles Romney, D. Shores, Brian Spilker, Ryan Wilson and workshop participants at the University of Washington and the BYU Accounting Research Symposium for helpful comments and insights on this paper. Shevlin acknowledges financial support from the Paul Merage School of Business at the University of California-Irvine. Thornock acknowledges financial support from the Marriott School of Management at Brigham Young University. Williams acknowledges support from the McCombs School of Business at the University of Texas. Finally, we are grateful for the support of the Foster School of Business at the University of Washington, where this project began.

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Copyright information

© Springer Science+Business Media New York 2017

Authors and Affiliations

  1. 1.University of California – IrvineIrvineUSA
  2. 2.Brigham Young UniversityProvoUSA
  3. 3.University of Texas at AustinAustinUSA

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