An examination of firms’ responses to tax forgiveness
Published online: 4 May 2017
Springer Science+Business Media New York 2017
Abstract This study uses state tax amnesties to examine how firms respond to
forgiveness—particularly repeated forgiveness—by a taxing authority. We posit that
tax forgiveness programs alter taxpayer perceptions of the probability of detection by
enforcers or the probability of future forgiveness programs, either of which could affect
future tax aggressiveness. We find that firms headquartered in an amnesty-granting
state increase state income tax aggressiveness following the first instance of tax
amnesty, relative to control firms in other states. Moreover, we find evidence that tax
aggressiveness incrementally increases with each additional repetition of a tax amnesty.
Finally, we find that the effect of amnesties on tax aggressiveness is more prominent for
small firms, which face less scrutiny and for which the tax aggressiveness measures are
less confounded. Our findings suggest that repeated programs of tax forgiveness have
increasingly negative implications for corporate tax collections.
Keywords Tax amnesty
JEL classification H25
Rev Account Stud (2017) 22:577–607
Electronic supplementary material The online version of this article (doi:10.1007/s11142-017-9390-6)
contains supplementary material, which is available to authorized users.
* Jacob Thornock
University of California – Irvine, Irvine, CA, USA
Brigham Young University, Provo, UT, USA
University of Texas at Austin, Austin, TX, USA