This study examines the relationship between tax avoidance and asymmetric cost behavior. This relationship arises due to direct economic benefits of cash savings from tax avoidance. On one hand, cash savings from tax avoidance may prompt managers to retain excess resources when activity goes down. On the other hand, tax avoidance may alleviate managers’ concerns about adjustment costs due to cost reductions in sales downturns. Using a large sample spanning the 1993-2013 period, we document a significantly negative relationship between tax avoidance, proxied by cash effective tax rate, and asymmetric cost behavior. The result suggests that asymmetric cost behavior is less pronounced when tax avoidance is higher. We further find that this relationship varies with firms’ business strategies, cash flow volatility, and tax fees paid to the auditor. This study advances the understanding of accounting researchers on the relationship between tax avoidance and managers’ resource adjustment decisions.