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Local Income Inequality and the Value of Corporate Tax Responsibility

Curtis Farnsel & Erica L. Neuman

Accounting and the Public Interest2024https://doi.org/10.2308/api-2023-022article
AJG 2ABDC B
Weight
0.42

Abstract

Corporate tax responsibility, or the obligation of companies to pay their “fair share” of taxes, is increasingly perceived as a component of firms’ social responsibility. Considering tax payments through the redistributive function, we examine how the association between corporate tax responsibility and firm value varies based on the presence of a salient social issue—local income inequality. Firms headquartered in areas of average income inequality have a negative relation between effective tax rate (ETR) and firm value, consistent with traditional economic theory and prior research. However, as local income inequality rises above average, the relation between ETR and firm value becomes more favorable (i.e., less negative). We interpret these findings as evidence that the relation depends on the salience of tax payments as a social issue. Further, the results are substantiated by firms whose socially responsible tax payments are consistent with their reputation as good corporate citizens. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: D22; H23; H25; H32.

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https://doi.org/https://doi.org/10.2308/api-2023-022

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@article{curtis2024,
  title        = {{Local Income Inequality and the Value of Corporate Tax Responsibility}},
  author       = {Curtis Farnsel & Erica L. Neuman},
  journal      = {Accounting and the Public Interest},
  year         = {2024},
  doi          = {https://doi.org/https://doi.org/10.2308/api-2023-022},
}

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Evidence weight

0.42

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.29 × 0.4 = 0.11
M · momentum0.53 × 0.15 = 0.08
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.