How Do Firms Use Cash Tax Savings? A Cross-country Analysis

We examine how firms utilize cash generated via tax avoidance. Understanding how firms use these cash flows is important given the considerable global attention firms' tax avoidance activities have received. Using an international sample, we find that firms are more likely to invest cash tax savings or use them to repurchase shares rather than distribute them in the form of dividends. We find that our results hold for an international sample of domestic-only firms, distinguishing our study from U.S.-only studies, which focus on constraints and distortions of multinational corporations in a worldwide tax system. When partitioning on country-level governance, we find that firms in weak governance countries are more likely to use tax savings to fund investment and pay dividends. Taken together, our results suggest cash tax avoidance is associated with important firm decisions, and these associations vary across countries.

Introduction

This special issue decenters tax as an analytic device for understanding the relationship between state and citizen while examining the limits of social contract thinking. Focusing on how citizens interpret and react to state efforts to promote fiscal citizenship, it sheds light on contemporary fiscal structures and public debates about the moralities, practices, and imaginaries of tax systems. The contributors use tax to explore the nature of citizenship, personal freedom, and moral and economic value. They also highlight how taxation may be influenced by spaces of fiscal sovereignty that exist outside or alongside the state in the form of alternative religious and economic communities.

PERAN PENERIMAAN PAJAK DALAM USAHA PEMERATAAN PENDAPATAN

Income inequality is a classic problem that is always a concern either by policymakers or academics. Currently, policymakers use tax as a tool to encourage income redistribution and reduce income inequality. This study presents empirical evidence regarding the effect of tax revenue on income distribution in several countries. This study utilizes data (panels) from several countries since 1999 and found that tax revenue did not have a significant impact on income distribution efforts. Ketimpangan pendapatan merupakan masalah klasik yang selalu menjadi perhatian baik oleh para pengambil kebijakan atau para akademisi. Saat ini para pengambil kebijakan menggunakan pajak sebagai alat untuk mendorong redistribusi pendapatan dan menekan ketimpangan pendapatan. Penelitian ini memaparkan bukti empiris mengenai pengaruh dari penerimaan pajak terhadap pemerataan pendapatan di beberapa negara. Menggunakan data (panel) dari beberapa negara sejak tahun 1999, penelitian ini menemukan bahwa, penerimaan pajak tidak memberikan dampak yang signifikan terhadap usaha pemerataan pendapatan.

Allocation of Internal Cash Flow when Firms Pay Less Tax

ABSTRACT We provide evidence about allocations of cash flow freed up by not paying taxes (“tax-related cash”). Uncertainty about future repayments suggests firms may use tax-related cash more cautiously than other cash flow. We utilize a flow-of-funds model from finance to quantify the relative amounts of tax-related cash associated with various potential uses of operating cash flow. We find firms allocate tax-related cash differently than other after-tax cash flow. Prior studies find tax avoiders hold more cash, and our results suggest this is because firms invest less (and save more) tax-related cash. We also find that the allocation of tax-related cash varies with relative financial constraints, economic uncertainty, and firms' multinational status in ways consistent with prior findings. For example, firms facing relatively higher levels of financial constraints invest a lower (higher) percentage of tax-related cash in capital expenditures (marketable securities and R&D), possibly to preserve funds for future investment opportunities. JEL Classifications: G31; H20.