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Market-Based Solutions to Vital Economic Issues
Research
Jan 1, 2017

Investment, Tax Uncertainty, and Aggressive Tax Avoidance

Abstract

This paper examines how tax uncertainty created by highly aggressive tax planning affects a firm’s investment decisions. The tax uncertainty that we study arises from tax choices of such inadequate merit that the firms themselves believe that they will lose if audited. Consistent with a simple model that we develop, we find that investments in fixed assets and research and development are increasing, at a decreasing rate, in the tax savings from these aggressive plans. This finding is consistent with the tax uncertainty from aggressive tax avoidance dampening investment. We appreciate the excellent research assistance by Kelly Wentland.

Note: Research papers posted on ResearchGate, including any findings, may differ from the final version chosen for publication in academic journals.

 


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