Tuesday, March 26, 2019
Jeffrey Hoopes (North Carolina) presents Is Tax Planning Best Done in Private? at NYU today as part of its Tax Policy Colloquium Series hosted by Lily Batchelder and Daniel Shaviro:
We investigate the conventional wisdom that privately-held firms engage in more tax planning than do publicly-held firms. Private firms are believed to face lower nontax costs of tax planning relative to public firms, allowing them to engage in more tax planning. However, empirical evidence of U.S. private firm tax planning is limited, primarily because of difficulty in obtaining private firm data. We make use of detailed administrative data from the Internal Revenue Service, which covers virtually all U.S. public and private firms. Using a variety of tax planning measures, and contrary to conventional wisdom, we find no evidence that private firms engage in more tax planning relative to similar-sized public firms in the same industry.
Moreover, some evidence suggests that private firms actually engage in less tax planning. These findings persist across different measures of tax planning and are not explained by firm characteristics commonly used to explain tax behavior. These results have important implications for researchers as well as for policymakers and managers.