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Empowering consumers to reduce corporate tax avoidance: Theory and Experiments


  • Fatas, Enrique

    (Center for Social Norms and Behavioral Dynamics, University of Pennsylvania and School of Management, Universidad ICESI)

  • Morales, Antonio J.

    (School of Economics, University of Malaga)

  • Sonntag, Axel

    (Institute for Advanced Studies Vienna and Vienna Center for Experimental Economics, University of Vienna)


We analyze corporate tax avoidance in a theoretical model and in a stylized experimental Bertrand setting in which symmetric firms and consumers sell and buy a homogeneous product, when human participants make decisions as firms and consumers. We investigate how market power and information disclosure of firms’ tax avoidance behavior impacts corporate tax avoidance and market competition. By imposing a tax rating, corporate tax behavior becomes more transparent, and consumers actively and costly boycott firms that do not pay their taxes. Firms adapt and anticipate consumer boycotts and increase tax payments, and prices. When rating disclosure is voluntary, the positive effect on corporate tax compliance vanishes in large markets.

Suggested Citation

  • Fatas, Enrique & Morales, Antonio J. & Sonntag, Axel, 2020. "Empowering consumers to reduce corporate tax avoidance: Theory and Experiments," IHS Working Paper Series 21, Institute for Advanced Studies.
  • Handle: RePEc:ihs:ihswps:21

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    More about this item


    tax avoidance; policy measure; tax rating; transparency; lab experiment;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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