Tax Avoidance Opportunities and Labor

with Peter Brok (Copenhagen Business School) 

Do companies change their business activity as a result of tax avoidance opportunities? By exploiting a regulatory shock to opportunities for tax avoidance that differentially affected parent-subsidiary pairs within and across countries, we find that firms increase their labor input in their treated subsidiaries. In addition, non-treated subsidiaries from the treated parent companies increase their employment as well suggesting a positive spill-over effect stemming from increased tax avoidance opportunities. Our results show that multinationals increase their real overall firm level employment, but our extended analyses suggest that domestic firms reacted by decreasing their employment, thereby questioning the long-run employment benefits of this event.

Conference and Seminar Presentations – 43rd Annual Congress of the European Accounting Association (Romania), Cass Business School (UK) and ETHOS (UK).