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This research addresses the question of whether market competition influences a firm's implicit tax burden. Implicit taxes are defined as the pretax rate of return disadvantage earned on an investment that is taxed preferentially. The Scholes and Wolfson (1992) model predicts that implicit taxes will fully offset any benefit from preferential tax treatment leading to no benefit from lower explicit taxes; however, their theory assumes perfect market competition. This chapter relaxes the assumption of perfect market competition and finds that firms in industries with lower competition bear lower implicit taxes and firms in industries with higher competition bear higher implicit taxes. These findings are consistent with monopoly and oligopoly behavior predictions where firms in less competitive industries have greater price setting power and can retain more of their tax savings while market forces in competitive industries force companies to pass along any savings to customers (Mason, 1939). Furthermore, these findings answer the call in the literature for more research on determinants of cross-sectional variation in implicit taxes (Shackelford & Shevlin, 2001).

We use the 1995 IRS Public Use Tax File in simulation models to examine the factors associated with the widely anticipated growth in the alternative minimum tax (AMT). The evidence suggests that the changes in the marginal tax rate structure associated with the 2001 and 2003 tax legislation are likely to result in exponential growth in AMT incidence and create a substantial hidden marriage tax penalty, a result contradictory with the intent of these tax law changes. The evidence further suggests that the elimination of preferential long-term capital gain rates for the AMT could effectively fund structural changes in the AMT that would substantially reduce the impact of the AMT on middle and lower income taxpayers, many of whom are liable for the AMT due to the add-back for AMT purposes of such non-tax preferential items as Schedule A adjustments and personal and dependency exemptions.

This chapter examines how public attitudes and judgments about tax fairness reflect distributive justice rules about proportionality/contributions, needs, and equality; fairness issues that influence voluntary tax compliance (Hofmann, Hoelzl, & Kirchler, 2008; Spicer & Lundstedt, 1976). Most public polls and some prior research indicate the general public considers progressive income tax rates as fairer than flat tax rates, a reflection of the Needs rule of distributive justice theory; our 1,138 participants respond similarly. However, two-thirds of our politically representative sample of the American public actually assign “fair shares” of income taxes consistently with fairness-as-proportionality above an exempt amount of income, consistent with the Contributions rule of Equity Theory. We argue experimental assignments of fair shares of income taxes can best be understood as a combination of the Needs rule, applied by exempting incomes below the poverty line from income taxation (via current standard deductions) and taxing incomes above this exempt amount at a single tax rate (i.e., a flat-rate tax) consistent with the Proportionality/Contributions rule. Viewed in combination, these two distributive justice rules explain the tax fairness judgments of 89% of our sample and indicate surprising general agreement about what constitutes a fair share of income taxes that should be paid by US citizens from the 5th percentile to the 95th percentile of the income distribution. The joint application of these fairness rules indicates how seemingly competing, partisan distributive justice concerns can inform our understanding of social attitudes about tax fairness across income classes.

This study documents that an outcome-favorable bias is greater when the quantity of information describing a balanced tax-decision context is substantially increased. Second, the study demonstrates that an outcome-favorable bias can be offset by the use of principles-based ethical standards. Specifically, we examine the effect of AICPA Code of Conduct Section 54 for integrity and Rule 102-6 for advocacy. Students volunteered to participate in this study examining the manner in which accounting novices initially process principles-based standards. Prior studies using student subjects in an audit setting have found that principles-based standards were effective only when students had high levels of moral reasoning (Herron & Gilbertson, 2004), and rules-based technical standards had no impact on student subjects when making financial adjustments (Pflugrath, Martinov-Bennie, & Chen, 2007). If professional standards increasingly rely on principles-based standards, then understanding the impact of such standards on future entrants into the profession would provide guidance in the creation and implementation of future standards, as well as assist educators in the development of accounting curricula. We extend the pattern of past research to a tax setting and show that tax-saving recommendations are a function of the presence of a professional standard and the level of contextual detail.

Despite its popularity as a research topic in the United States, property taxation in other countries has not received as much attention. International comparisons of property tax systems are particularly rare in the academic literature. The purpose of this study is twofold. First, the chapter summarizes the main differences and similarities of the property tax systems in 24 Organisation for Economic Co-operation and Development (OECD) countries between 1970 and 2005. We show that these countries’ property tax systems vary with regard to three different property tax characteristics: reliance, mix, and decentralization. Second, we show that a significant amount of the cross-country variations of property tax and real estate tax reliance can be explained by institutional culture, specifically the difference between Anglo and non-Anglo countries, as well as demographic and economic environmental factors such as the elderly population, income, and unemployment.

Purpose — The chapter assesses the linkages between unreported economic activities and different individualistic and non-individualistic motives as perceived by firm management.Design/methodology/approach — The empirical research is based on a survey of the management of firms operating in the Baltic States. The survey contains information on the perceived extent of unreported activities and on a large number of firm-, sector-, and country-specific factors. A principal component analysis identifies clusters of motives for unreported activity. Regression analyses ascertain the importance of motives individually and as principal components on the extent of unreported activities.Findings — Both individualistic and non-individualistic motives are important for the prevalence of unreported activities. The individualist motives refer to the management being solely profit-oriented and self-interested. Among possible non-individualist motives, measures of government performance and perceptions of reciprocity towards the government appear to play important roles for the extent of unreported activities, but broader societal norms may also play a role.Research limitations/implications — The study considers the perceptions that managers have of unreported activities and other features. These perceptions are subjective and subject to substantial uncertainty. All results should be interpreted in light of the subjective nature of the survey answers.Social implications — Taken literally, the results suggest that stronger government performance is associated with a reduction in unreported activities, at least as perceived by the management. Broader societal developments may also be of importance.Originality/value — The inclusion of variables capturing individualistic as well as non-individualistic motives gives a comprehensive picture of factors behind unreported activities. We employ principal component analysis which allows us to cluster individual survey answers and to produce composite measures of different explanatory factors.

This chapter presents a seven-part case developed for use in a graduate-level tax planning class. The case is organized in a taxpayer/business “life-cycle” approach. Over the semester the case follows a married couple as they consider a number of investments, start a business, and expand the business. As the case progresses, the couple faces increasingly complex tax and business issues. The couple eventually winds down their involvement in the business and begins to plan for their retirement years. This chapter also provides a review of behavioral tax research published in the top accounting journals over the period 2004–2013. The chapter concludes with a discussion of how the case could be adapted by behavioral tax researchers in their research programs and perhaps by accounting firms in their training programs.

Fiscal policy is one of the weighty instruments of state regulation and is intended to ensure the creation of an institutional environment to reach the strategic objectives of sustainable development. This chapter is devoted to the study of the implementation of tax reform in Belarus. It analyzes the place of tax instruments in economic growth and investigates the strategic direction of tax reforms. The actual tax policy in Belarus is determined by the requirements of the national strategy of sustainable development which aims to ensure a stable financial basis for the development of society, economy, and environmental management. The historical and economic conditions of Belarus require an assessment of the local peculiarities of the use of tax instruments, which are now in force in leading countries. Therefore the study of foreign experience is complemented by an analysis of local conditions. Tax policy must ensure and support changes in national economies related to globalization, informatization and digitalization of the modern world, while maintaining the ideas of social justice. As a theoretical and practical tool for improving the quality of the tax system through the modernization of the incentives system, the concept of tax expenditures as a part of the budget process was investigated.

The existing literature documents mixed evidence toward the association between corporate social responsibility (CSR) and corporate tax planning (e.g., Davis, Guenther, Krull, & Williams, 2016; Hoi, Wu, & Zhang, 2013). In this study, I aim to identify a causal relationship between CSR and tax planning, leveraging the staggered adoptions of constituency statutes in US states, which is a plausibly exogenous shock to firms' emphasis on their social responsibility. In general, the statutes permit firm directors to consider the interests of all constituents when making business decisions, including those who benefit from firms paying their fair share of income taxes. Thus, the adoption of the statutes raises the importance of firms' social responsibility in paying income taxes. Employing a staggered difference-in-differences (DiD) method, I find that firms incorporated in states that have adopted constituency statutes exhibit significantly higher effective tax rates (ETRs) based on current tax expense. This causal relationship suggests that managers, with the legitimacy to consider the social impact of tax avoidance, become less aggressive in tax planning. I further find that the effect of adoption is stronger for financially unconstrained firms and firms in retail businesses, where the demand (cost) for tax avoidance is lower (higher). Finally, I show that my main results are driven by firms located in states with a high sense of social responsibility and firms with high levels of tax avoidance prior to the adoption. Overall, the findings in this chapter contribute to the literature by delineating a negative causal relationship between CSR and tax avoidance and identifying a positive social impact brought by the passage of constituency legislation.

This chapter provides an overview of the explanations and factors affecting dividend policy. This study employs a systematic literature review approach to review a large sample of studies related to the dividend puzzle. Although the analysis reveals mixed evidence involving the theories and determinants of dividend policy, some determinants appear in numerous studies. However, no consensus exists on an optimal dividend to resolve the dividend puzzle, and the authors propose a model to deal with the same. When examining dividend policy, researchers should consider the firm, market, behavior, and other determinants. When making significant dividend or stock decisions, managers and shareholders should also contemplate the factors, interactions, inadequacies, and consequences. Future researchers should strive to take a more comprehensive view when resolving the dividend puzzle. This study provides a current and complete picture of dividend policy's available theories and empirical determinants. Its significant contribution is identifying some of the more consistently essential determinants of dividend policy while proposing a holistic model to address the prevailing dividend dilemma.