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Importing corruption culture from overseas: Evidence from corporate tax evasion in the United States

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  • DeBacker, Jason
  • Heim, Bradley T.
  • Tran, Anh

Abstract

We study how cultural norms and enforcement policies influence illicit corporate activities. Using confidential Internal Revenue Service (IRS) audit data, we show that corporations with owners from countries with higher corruption norms evade more tax in the U.S. This effect is strong for small corporations and decreases as the size of the corporation increases. In the mid-2000s, the United States implemented several enforcement measures to increase tax compliance. We find that these enforcement efforts were less effective in reducing tax evasion by corporations whose owners are from corrupt countries. This suggests that cultural norms can be a challenge to legal enforcement.

Suggested Citation

  • DeBacker, Jason & Heim, Bradley T. & Tran, Anh, 2015. "Importing corruption culture from overseas: Evidence from corporate tax evasion in the United States," Journal of Financial Economics, Elsevier, vol. 117(1), pages 122-138.
  • Handle: RePEc:eee:jfinec:v:117:y:2015:i:1:p:122-138
    DOI: 10.1016/j.jfineco.2012.11.009
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    More about this item

    Keywords

    Tax evasion; Corruption; Norms; Legal enforcement;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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