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Journal of Accounting Research Vol. 61 No. 5 2023

Reciprocity in Corporate Tax Compliance—Evidence from Ozone Pollution

Travis Chow1; Zhongwen Fan2; Li Huang3; Oliver Zhen Li4,5; Siman Li6

1 HKU Business School, University of Hong Kong · 2 Department of Accountancy City University of Hong Kong · 3 Department of Accounting, Antai College of Economics and Management Shanghai Jiao Tong University · 4 School of Accounting, Shanghai Lixin University of Accounting and Finance · 5 Department of Accounting, National University of Singapore · 6 Accounting Department Xiamen University

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Abstract

In a tax—public goods reciprocity framework between citizens and the state, managers view taxes as a payment to the government in exchange for public goods, and hence they adjust their willingness to pay taxes as public good quality changes. We show that corporate tax planning intensity increases with ground‐level ozone pollution. Revisions in ozone pollution regulations cause counties that failed the revised and more stringent standards to reduce ozone pollution. Consequently, firms headquartered in these counties reduced corporate tax planning intensity relative to firms in other counties. The ozone‐tax link varies in the predicted directions with public attention to pollution, potential welfare loss due to ozone, managers’ stakeholder orientation, taxpayers’ polluting status, political preferences, and civic norms. We also find consistent results for Superfund cleanups of hazardous waste sites. Our research sheds light on reciprocity as a potential mechanism influencing corporate tax compliance.

DOI
10.1111/1475-679x.12500
Volume
61
Issue
5
Pages
1425-1477
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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