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The relationship between political connections and tax avoidance in European settings.
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2022-07-21
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en
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Abstract
This study examines the relationship between political connections and corporate tax avoidance in a European setting. This paper also explores the impacts of government’ level of corruption and global financial crisis on tax avoidance practices. Using a sample of European firms including 54.221 firm-year observations from 2002 to 2020, the empirical results show that politically connected firms are more likely to avoid corporate income tax than non-connected peers. The results also reveal that tax avoidance practices vary between different corruption environments (i.e. high corruption environment and low corruption environment) as well as differ before and after global financial crisis. However, the findings of this study do not indicate that firms engage more in tax avoidance as an alternative strategy to reduce operating costs after financial crisis or that low corruption environment acts as deterrent in reducing firm’s tax avoidance behaviours. These findings have important implications for tax authorities, policymakers as well as the welfare of the overall economy.
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Faculteit der Managementwetenschappen