Faculty of Business Administration
Visiting Scholar Seminar
Does Social Capital Accelerate the Adjustment Speed of Tax Burdens?
Dr. Xiao Jun LIN
Guangdong University of Finance and Economic
Date: 14 July 2021 (Wednesday)
In this study, we investigate whether the level of social capital surrounding firm headquarters accelerates the adjustment speed of their tax burden. Prior studies document that social capital, captured as altruistic norms and close interactions, motivates norm-complying behaviors and inhibits misbehaviors. Accordingly, we expect that social capital will reduce the frictions associated with tax planning adjustment and thus accelerate convergence toward a firm’s optimal tax burden level. Consistent with our prediction, the empirical results reveal that firms located in areas of high social capital approach the equilibrium point of tax strategies more rapidly than their counterparts located in areas with low social capital. The effect of social capital is incremental over and above internal firm attributes. We also document that the impact of social capital is more pronounced during the financial crisis. Our finding is robust after taking religiosity into account, alleviating concern over endogeneity, and using alternative measures of both tax burdens and social capital.
Key Words: Tax Avoidance, Optimal Taxation, Social Capital
JEL Classification: H21, H26, M14