The influence of the environment’s tax morale on corporate tax avoidance

We explore the impact of a country’s tax morale —defined as the intrinsic motivation and social norms that promote tax compliance— on corporate tax avoidance for both domestic firms and multinational corporations (MNCs). Our findings reveal that a strong tax morale environment deters tax avoidance for domestic companies. Moreover, our results indicate that the negative relationship between tax morale and tax avoidance is driven primarily by managers’ own tax morale rather than reputational concerns. For MNCs, our results reveal a more complex relationship between tax morale and income-shifting practices: While strong tax morale in the subsidiaries’ countries is associated with less income-shifting practices, parent companies headquartered in high-tax-morale countries engage more in these practices, possibly to bypass stricter norms at home. This study contributes to the literature by showing that tax morale plays a critical role in shaping corporate tax behavior, offering insights for policymakers on the importance of cultural and social contexts in reducing tax avoidance.