Subject：The Local Economic Effects of Federal Corporate Tax Enforcement

Guest：Martin Jacob, Professor of Otto Beisheim School of Management, WHU, Germany

Host：Wu Wenfeng,  Professor, ACEM of SJTU

Time：Wednesday, Mar 30th, 2022, 16:00-17:30

Venue：Tencent Meeting

(Please send email to finance@acem.sjtu.edu.cn by 17:00 Mar. 29th for meeting number and password.) 

Abstract:

We examine the consequences of federal corporate tax enforcement for local economic growth. Audits of U.S. corporate tax returns have declined significantly in recent years, and recent proposals suggest expanding the number of these audits to improve tax revenues and reduce the tax gap. However, increasing tax audits will impose tax and non-tax costs on businesses, potentially reducing economic activity. Using cross-sectional variation in U.S. commuter zones’ exposure to different firm sizes and time-series variation in tax return audit rates across firm size groups, we document that corporate tax enforcement is negatively associated with local economic growth, measured by the number of establishments and firm employment. These findings are robust to using a shift-share design that mitigates endogeneity concerns. This association is stronger for regions with a greater share of firms operating in cash-based industries (which facilitates tax evasion) or in intangible-focused sectors (which facilitates profit shifting), and weaker for regions with greater access to funding via local banks, suggesting that tax enforcement affects the composition of local economies. Overall, our findings suggest that corporate tax enforcement has both level and compositional consequences for employment and new business formation.

Guest Bio：

Professor Martin Jacob holds the adidas endowed Chair of Finance, Accounting, and Taxation at WHU – Otto Beisheim School of Management. His research focuses on the economic effects of taxation on business decisions. His work has been published in several leading international journals including the Journal of Financial Economics, the Journal of Accounting Research, the Review of Financial Studies, The Accounting Review, the Journal of Accounting and Economics, Management Science, and the Journal of Public Economics. He further serves as Associate Editor of the European Accounting Review and Accounting & Business Research since 2016. His research has been widely cited in newspapers as well as policy debates. Since 2021, Martin Jacob is a member of the Scientific Advisory Board of the German Ministry of Finance.