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An Economic Analysis of Anti-Tax-Avoidance Doctrines

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  • David A. Weisbach

Abstract

This article analyzes the effect of tax law doctrines designed to reduce tax shelters, such as the business-purpose doctrine, and the economic-substance doctrine. The article analyzes these doctrines as changes to the marginal elasticity of taxable income. As these doctrines are strengthened, the elasticity of taxable income goes down (in absolute value). By reducing the marginal elasticity of taxable income, the doctrines increase the efficiency of the tax system. Because the doctrines cannot perfectly identify tax avoidance, however, they induce a distortionary response by taxpayers, who may structure shelters to avoid the doctrines. This distortionary effect reduces their efficiency. The net benefit should be set equal on the margin to the marginal administrative cost of the doctrines. Copyright 2002, Oxford University Press.

Suggested Citation

  • David A. Weisbach, 2002. "An Economic Analysis of Anti-Tax-Avoidance Doctrines," American Law and Economics Review, American Law and Economics Association, vol. 4(1), pages 88-115, January.
    • Handle: RePEc:oup:amlawe:v:4:y:2002:i:1:p:88-115
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    Cited by:

    1. Morelli, Massimo & Ash, Elliott & Vannoni, Matia, 2022. "More Laws, More Growth? Evidence from U.S. States," CEPR Discussion Papers 15629, C.E.P.R. Discussion Papers.
    2. Matthew C. Stephenson, 2009. "Legal Realism for Economists," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 191-211, Spring.
    3. Luca Menicacci & Lorenzo Simoni, 2024. "Negative media coverage of ESG issues and corporate tax avoidance," Sustainability Accounting, Management and Policy Journal, Emerald Group Publishing Limited, vol. 15(7), pages 1-33, February.
    4. Johannes Lorenz, 2019. "Population dynamics of tax avoidance with crowding effects," Journal of Evolutionary Economics, Springer, vol. 29(2), pages 581-609, April.
    5. Stjepan Gadzo & Irena Klemencic, 2014. "Time to stop avoiding the tax avoidance issue in Croatia? A proposal based on recent developments in the European Union," Financial Theory and Practice, Institute of Public Finance, vol. 38(3), pages 277-302.
    6. Hossain, Mahmud & Mitra, Santanu, 2023. "Does headquarters location matter in corporate tax avoidance?," Journal of Financial Stability, Elsevier, vol. 64(C).
    7. Mahmud Hossain & Gerald J. Lobo & Santanu Mitra, 2023. "Firm-level political risk and corporate tax avoidance," Review of Quantitative Finance and Accounting, Springer, vol. 60(1), pages 295-327, January.
    8. Lorenz, Johannes, 2017. "Population dynamics of tax avoidance with crowding effects," Passauer Diskussionspapiere, Volkswirtschaftliche Reihe V-76-17, University of Passau, Faculty of Business and Economics.
    9. Chih-Wen Mao, 2019. "Effect of corporate social responsibility on corporate tax avoidance: evidence from a matching approach," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(1), pages 49-67, January.
    10. Robert Bird & Karie Davis-Nozemack, 2018. "Tax Avoidance as a Sustainability Problem," Journal of Business Ethics, Springer, vol. 151(4), pages 1009-1025, September.
    11. Burcin Col & Saurin Patel, 2019. "Going to Haven? Corporate Social Responsibility and Tax Avoidance," Journal of Business Ethics, Springer, vol. 154(4), pages 1033-1050, February.
    12. Tang, Tian & Xu, Liang & Yan, Xinyan & Yang, Haoyi, 2022. "Simultaneous debt–equity holdings and corporate tax avoidance," Journal of Corporate Finance, Elsevier, vol. 72(C).
    13. Yi-Hsing Liao & Teng-Sheng Sang & Yuan-Tang Tsai, 2022. "Do information sources matter in corporate tax avoidance? The roles of peer effects and director interlocks," Review of Quantitative Finance and Accounting, Springer, vol. 59(1), pages 339-382, July.
    14. Kumari Juddoo & Issam Malki & Sudha Mathew & Sheeja Sivaprasad, 2023. "An impact investment strategy," Review of Quantitative Finance and Accounting, Springer, vol. 61(1), pages 177-211, July.
    15. Ziqi Gao & Louise Yi Lu & Yangxin Yu, 2019. "Local Social Environment, Firm Tax Policy, and Firm Characteristics," Journal of Business Ethics, Springer, vol. 158(2), pages 487-506, August.
    16. Lorenz, Johannes & Diller, Markus & Sureth, Caren, 2021. "The epidemiology of tax avoidance narratives," arqus Discussion Papers in Quantitative Tax Research 268, arqus - Arbeitskreis Quantitative Steuerlehre.
    17. Yewei Wu & Bofu Zhang, 2023. "Inquiry Letters and Tax Aggressiveness," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 31(4), pages 37-65, July.

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