IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v124y2023ics0264999323001128.html
   My bibliography  Save this article

Pandemic and tax avoidance: Cross-country evidence

Author

Listed:
  • Zhu, Jun
  • Ho, Kung-Cheng
  • Luo, Sijia
  • Peng, Langchuan

Abstract

Tax avoidance is appealing to firms since it increases their cash flow by reducing tax payments, which can then be used to expand operations and invest in research and development. The existing literature explores numerous factors that contribute to firms' tax avoidance behavior, but it fails to consider the impact of a pandemic. Based on a sample of 42 countries between 1989 and 2020, we investigate the relationship between pandemic presence and firms’ tax avoidance activities. We find that tax avoidance activities increase during pandemics, which is reflected in decreased effective tax rates (ETRs). Furthermore, this influence is strengthened by adopting International Financial Reporting Standards and societal trust level. Channel analysis shows that the findings are realized through worse firm performances, reduced economic growth, lower country-level stability, and more interest obligations. These findings offer up-to-date perspectives and recommendations to policymakers in crafting suitable and effective schemes for post-pandemic recovery.

Suggested Citation

  • Zhu, Jun & Ho, Kung-Cheng & Luo, Sijia & Peng, Langchuan, 2023. "Pandemic and tax avoidance: Cross-country evidence," Economic Modelling, Elsevier, vol. 124(C).
    • Handle: RePEc:eee:ecmode:v:124:y:2023:i:c:s0264999323001128
    DOI: 10.1016/j.econmod.2023.106300
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999323001128
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2023.106300?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Chen, Shuping & Chen, Xia & Cheng, Qiang & Shevlin, Terry, 2010. "Are family firms more tax aggressive than non-family firms?," Journal of Financial Economics, Elsevier, vol. 95(1), pages 41-61, January.
    2. Célimène, Fred & Dufrénot, Gilles & Mophou, Gisèle & N'Guérékata, Gaston, 2016. "Tax evasion, tax corruption and stochastic growth," Economic Modelling, Elsevier, vol. 52(PA), pages 251-258.
    3. Jon N. Kerr, 2019. "Transparency, Information Shocks, and Tax Avoidance," Contemporary Accounting Research, John Wiley & Sons, vol. 36(2), pages 1146-1183, June.
    4. Bournakis, Ioannis & Mallick, Sushanta, 2021. "Do Corporate Taxes Harm Economic Performance? Explaining Distortions In R&D- And Export-Intensive Uk Firms," Macroeconomic Dynamics, Cambridge University Press, vol. 25(1), pages 5-27, January.
    5. Taylor, Grantley & Al-Hadi, Ahmed & Richardson, Grant & Alfarhan, Usamah & Al-Yahyaee, Khamis, 2019. "Is there a relation between labor investment inefficiency and corporate tax avoidance?," Economic Modelling, Elsevier, vol. 82(C), pages 185-201.
    6. Hackbarth, Dirk & Miao, Jianjun & Morellec, Erwan, 2006. "Capital structure, credit risk, and macroeconomic conditions," Journal of Financial Economics, Elsevier, vol. 82(3), pages 519-550, December.
    7. McClure, Ross & Lanis, Roman & Wells, Peter & Govendir, Brett, 2018. "The impact of dividend imputation on corporate tax avoidance: The case of shareholder value," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 492-514.
    8. Chakraborty, Shankha & Papageorgiou, Chris & Pérez Sebastián, Fidel, 2010. "Diseases, infection dynamics, and development," Journal of Monetary Economics, Elsevier, vol. 57(7), pages 859-872, October.
    9. Tao Zeng, 2019. "Country-level governance, accounting standards, and tax avoidance: a cross-country study," Asian Review of Accounting, Emerald Group Publishing Limited, vol. 27(3), pages 401-424, September.
    10. Hao, Xiangchao & Sun, Qinru & Xie, Fang, 2022. "The COVID-19 pandemic, consumption and sovereign credit risk: Cross-country evidence," Economic Modelling, Elsevier, vol. 109(C).
    11. Maliszewska,Maryla & Mattoo,Aaditya & Van Der Mensbrugghe,Dominique, 2020. "The Potential Impact of COVID-19 on GDP and Trade : A Preliminary Assessment," Policy Research Working Paper Series 9211, The World Bank.
    12. Arena, Matteo P. & Wang, Bin & Yang, Rong, 2021. "Securities litigation and corporate tax avoidance," Journal of Corporate Finance, Elsevier, vol. 66(C).
    13. Moll, Benjamin & Kaplan, Greg & Violante, Giovanni, 2020. "The Great Lockdown and the Big Stimulus: Tracing the Pandemic Possibility Frontier for the U.S," CEPR Discussion Papers 15256, C.E.P.R. Discussion Papers.
    14. James Alm & Kay Blaufus & Martin Fochmann & Erich Kirchler & Peter N. C. Mohr & Nina E. Olson & Benno Torgler, 2020. "Tax Policy Measures to Combat the SARS-CoV-2 Pandemic and Considerations to Improve Tax Compliance: A Behavioral Perspective," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 76(4), pages 396-428.
    15. Dyreng, Scott D. & Hanlon, Michelle & Maydew, Edward L. & Thornock, Jacob R., 2017. "Changes in corporate effective tax rates over the past 25 years," Journal of Financial Economics, Elsevier, vol. 124(3), pages 441-463.
    16. Gupta, Sanjay & Newberry, Kaye, 1997. "Determinants of the variability in corporate effective tax rates: Evidence from longitudinal data," Journal of Accounting and Public Policy, Elsevier, vol. 16(1), pages 1-34.
    17. Cottafava, Dario & Gastaldo, Michele & Quatraro, Francesco & Santhiá, Cristina, 2022. "Modeling economic losses and greenhouse gas emissions reduction during the COVID-19 pandemic: Past, present, and future scenarios for Italy," Economic Modelling, Elsevier, vol. 110(C).
    18. Sun, Yukun, 2021. "Corporate tax avoidance and government corruption: Evidence from Chinese firms," Economic Modelling, Elsevier, vol. 98(C), pages 13-25.
    19. Hongbin Cai & Qiao Liu, 2009. "Competition and Corporate Tax Avoidance: Evidence from Chinese Industrial Firms," Economic Journal, Royal Economic Society, vol. 119(537), pages 764-795, April.
    20. Chodorow-Reich, Gabriel & Coglianese, John, 2021. "Projecting unemployment durations: A factor-flows simulation approach with application to the COVID-19 recession," Journal of Public Economics, Elsevier, vol. 197(C).
    21. McTier, Brian C. & Tse, Yiuman & Wald, John K., 2013. "Do Stock Markets Catch the Flu?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 48(3), pages 979-1000, June.
    22. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "The Role of Social Capital in Financial Development," American Economic Review, American Economic Association, vol. 94(3), pages 526-556, June.
    23. Allison Koester & Terry Shevlin & Daniel Wangerin, 2017. "The Role of Managerial Ability in Corporate Tax Avoidance," Management Science, INFORMS, vol. 63(10), pages 3285-3310, October.
    24. Gong, Di & Jiang, Tao & Lu, Liping, 2021. "Pandemic and bank lending: Evidence from the 2009 H1N1 pandemic," Finance Research Letters, Elsevier, vol. 39(C).
    25. Kiridaran Kanagaretnam & Jimmy Lee & Chee Yeow Lim & Gerald Lobo, 2018. "Societal trust and corporate tax avoidance," Review of Accounting Studies, Springer, vol. 23(4), pages 1588-1628, December.
    26. Hassan, Tarek & Hollander, Stephan & van Lent, Laurence & Schwedeler, Markus & Tahoun, Ahmed, 2020. "Firm-Level Exposure to Epidemic Diseases: Covid-19, SARS, and H1N1," CEPR Discussion Papers 14573, C.E.P.R. Discussion Papers.
    27. Carter, David & Mazumder, Sharif & Simkins, Betty & Sisneros, Eric, 2022. "The stock price reaction of the COVID-19 pandemic on the airline, hotel, and tourism industries," Finance Research Letters, Elsevier, vol. 44(C).
    28. Ding, Wenzhi & Levine, Ross & Lin, Chen & Xie, Wensi, 2021. "Corporate immunity to the COVID-19 pandemic," Journal of Financial Economics, Elsevier, vol. 141(2), pages 802-830.
    29. Zhe An & Zhian Chen & Donghui Li & Lu Xing, 2018. "Individualism and stock price crash risk," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 49(9), pages 1208-1236, December.
    30. Richardson, Grant & Taylor, Grantley & Lanis, Roman, 2015. "The impact of financial distress on corporate tax avoidance spanning the global financial crisis: Evidence from Australia," Economic Modelling, Elsevier, vol. 44(C), pages 44-53.
    31. Mr. John D Brondolo, 2009. "Collecting Taxes During an Economic Crisis: Challenges and Policy Options," IMF Staff Position Notes 2009/017, International Monetary Fund.
    32. Fan, Victoria Y & Jamison, Dean T & Summers, Lawrence H, 2018. "Pandemic risk: how large are the expected losses?," Scholarly Articles 35014363, Harvard Kennedy School of Government.
    33. Preetika Joshi & Edmund Outslay & Anh Persson & Terry Shevlin & Aruhn Venkat, 2020. "Does Public Country‐by‐Country Reporting Deter Tax Avoidance and Income Shifting? Evidence from the European Banking Industry," Contemporary Accounting Research, John Wiley & Sons, vol. 37(4), pages 2357-2397, December.
    34. Mohanty, Aatishya & Sharma, Swati, 2022. "COVID-19 regulations, culture, and the environment," Economic Modelling, Elsevier, vol. 113(C).
    35. Shinozaki, Shigehiro & Rao, Lakshman N., 2021. "COVID-19 Impact on Micro, Small, and Medium-Sized Enterprises under the Lockdown: Evidence from a Rapid Survey in the Philippines," ADBI Working Papers 1216, Asian Development Bank Institute.
    36. Kelvin K. F. Law & Lillian F. Mills, 2017. "Military experience and corporate tax avoidance," Review of Accounting Studies, Springer, vol. 22(1), pages 141-184, March.
    37. repec:zbw:bofitp:2020_012 is not listed on IDEAS
    38. Marcus Keogh-Brown & Richard Smith & John Edmunds & Philippe Beutels, 2010. "The macroeconomic impact of pandemic influenza: estimates from models of the United Kingdom, France, Belgium and The Netherlands," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 11(6), pages 543-554, December.
    39. Alexander W. Bartik & Marianne Bertrand & Zoe Cullen & Edward L. Glaeser & Michael Luca & Christopher Stanton, 2020. "The impact of COVID-19 on small business outcomes and expectations," Proceedings of the National Academy of Sciences, Proceedings of the National Academy of Sciences, vol. 117(30), pages 17656-17666, July.
    40. Ftiti, Zied & Ben Ameur, Hachmi & Louhichi, Waël, 2021. "Does non-fundamental news related to COVID-19 matter for stock returns? Evidence from Shanghai stock market," Economic Modelling, Elsevier, vol. 99(C).
    41. Alberto Cavallo, 2020. "Inflation with Covid Consumption Baskets," NBER Working Papers 27352, National Bureau of Economic Research, Inc.
    42. Xia, Changyuan & Cao, Chunfang & Chan, Kam C., 2017. "Social trust environment and firm tax avoidance: Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 374-392.
    43. Kiridaran Kanagaretnam & Jimmy Lee & Chee Yeow Lim & Gerald J. Lobo, 2018. "Cross-Country Evidence on the Role of Independent Media in Constraining Corporate Tax Aggressiveness," Journal of Business Ethics, Springer, vol. 150(3), pages 879-902, July.
    44. Funke, Michael & Tsang, Andrew, 2020. "The People’s bank of China’s response to the coronavirus pandemic: A quantitative assessment," Economic Modelling, Elsevier, vol. 93(C), pages 465-473.
    45. John Brondolo, 2009. "Collecting Taxes During an Economic Crisis; Challenges and Policy Options," IMF Staff Position Notes 2009/17, International Monetary Fund.
    46. Li, Jianjun & Wang, Xuan & Wu, Yaping, 2020. "Can government improve tax compliance by adopting advanced information technology? Evidence from the Golden Tax Project III in China," Economic Modelling, Elsevier, vol. 93(C), pages 384-397.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Athira, A. & Ramesh, Vishnu K., 2023. "COVID-19 and corporate tax avoidance: International evidence," International Business Review, Elsevier, vol. 32(4).
    2. Richardson, Grant & Taylor, Grantley & Lanis, Roman, 2015. "The impact of financial distress on corporate tax avoidance spanning the global financial crisis: Evidence from Australia," Economic Modelling, Elsevier, vol. 44(C), pages 44-53.
    3. Christofer Adrian & Mukesh Garg & Anh Viet Pham & Soon-Yeow Phang & Cameron Truong, 2023. "Do Natural Disasters Affect Corporate Tax Avoidance? The Case of Drought," Journal of Business Ethics, Springer, vol. 186(1), pages 105-135, August.
    4. Kovermann, Jost & Velte, Patrick, 2019. "The impact of corporate governance on corporate tax avoidance—A literature review," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 36(C), pages 1-1.
    5. Tao Chen & Sidney Leung & Lingmin Xie, 2021. "Does credit rating conservatism matter for corporate tax avoidance?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(4), pages 5681-5730, December.
    6. Nguyen, Hung T. & Pham, Mia Hang & Truong, Cameron, 2023. "Leadership in a pandemic: Do more able managers keep firms out of trouble?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    7. Ming-Hua Liu & Shaohua Tian & Yang Zhang, 2023. "CEO marital status and corporate tax planning behavior," Review of Quantitative Finance and Accounting, Springer, vol. 61(4), pages 1207-1242, November.
    8. Ferchichi Jihene & Dabboussi Moez, 2019. "The Moderating Effect of Audit Quality on CEO Compensation and Tax Avoidance: Evidence from Tunisian Context," International Journal of Economics and Financial Issues, Econjournals, vol. 9(1), pages 131-139.
    9. Hasan, Mostafa Monzur & Lobo, Gerald J. & Qiu, Buhui, 2021. "Organizational capital, corporate tax avoidance, and firm value," Journal of Corporate Finance, Elsevier, vol. 70(C).
    10. Xiang, Junyi & Zhu, Ling & Kong, Dongmin, 2023. "Labor cost and corporate tax avoidance," Journal of Economic Behavior & Organization, Elsevier, vol. 205(C), pages 338-358.
    11. Alharbi, Samar & Atawnah, Nader & Al Mamun, Md & Ali, Muhammad Jahangir, 2022. "Local culture and tax avoidance: Evidence from gambling preference behavior," Global Finance Journal, Elsevier, vol. 52(C).
    12. Belz, Thomas & von Hagen, Dominik & Steffens, Christian, 2019. "Taxes and firm size: Political cost or political power?," Journal of Accounting Literature, Elsevier, vol. 42(C), pages 1-28.
    13. Richardson, Grant & Lanis, Roman & Taylor, Grantley, 2015. "Financial distress, outside directors and corporate tax aggressiveness spanning the global financial crisis: An empirical analysis," Journal of Banking & Finance, Elsevier, vol. 52(C), pages 112-129.
    14. Kong, Dongmin & Zhao, Ying & Liu, Shasha, 2021. "Trust and innovation: Evidence from CEOs' early-life experience," Journal of Corporate Finance, Elsevier, vol. 69(C).
    15. Shen, Yuxin & Xu, Hanwen & Yu, Shuangli & Xu, Wei & Shen, Yongjian, 2022. "Air pollution and tax avoidance: New evidence from China," Economic Analysis and Policy, Elsevier, vol. 74(C), pages 402-420.
    16. Thomas R. Kubick & Yijun Li & John R. Robinson, 2020. "Tax-savvy executives," Review of Accounting Studies, Springer, vol. 25(4), pages 1301-1343, December.
    17. Fangjun Wang & Shuolei Xu & Junqin Sun & Charles P. Cullinan, 2020. "Corporate Tax Avoidance: A Literature Review And Research Agenda," Journal of Economic Surveys, Wiley Blackwell, vol. 34(4), pages 793-811, September.
    18. Richardson, Grant & Wang, Bei & Zhang, Xinmin, 2016. "Ownership structure and corporate tax avoidance: Evidence from publicly listed private firms in China," Journal of Contemporary Accounting and Economics, Elsevier, vol. 12(2), pages 141-158.
    19. Cristi A. Gleason & Sascha Kieback & Martin Thomsen & Christoph Watrin, 2021. "Monitoring or payroll maximization? What happens when workers enter the boardroom?," Review of Accounting Studies, Springer, vol. 26(3), pages 1046-1087, September.
    20. Liang, Quanxi & Li, Qiumei & Lu, Meiting & Shan, Yaowen, 2021. "Industry and geographic peer effects on corporate tax avoidance: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).

    More about this item

    Keywords

    Pandemic; Tax avoidance; Formal institution; Informal institution;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:124:y:2023:i:c:s0264999323001128. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.