Paul L. Caron

Thursday, February 20, 2020

Judge Ideology And Corporate Tax Planning

Travis Chow (Singapore Management University), Allen Huang (Hong Kong University of Science and Technology), Kai Wai Hui (University of Hong Kong) & Terry Shevlin (UC-Irvine), Judge Ideology and Corporate Tax Planning:

We investigate whether and how the federal judiciary affects corporate tax planning. We find that firms engage in less aggressive tax planning when Circuit Court and Tax Court judges are more liberal. This effect is economically significant and robust across various measures of tax planning. We further detail specific tax planning tactics in response to liberal judge ideology, such as shifting less income overseas, conducting more foreign tax planning, and acquiring more auditor-provided tax services. Firms also avoid liberal judges through forum shopping. Finally, we show that IRS enforcement complements the judge ideology effect.

Overall, we are the first to demonstrate the judicial branch as a key determinant of corporate tax planning, which contributes to a more complete understanding of tax enforcement.

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I don’t buy this. It might be true, but the paper doesn’t convince me. The R2 isn’t that persuasive, either.

Posted by: Anon | Feb 20, 2020 5:05:25 AM