Corporate philanthropy as a response to greater tax enforcement

Abstract

I examine whether firms engage in more corporate philanthropy in response to greater tax enforcement. Using the introduction of a new tax administration system as a proxy for increased tax enforcement, I find stricter tax enforcement results in more corporate donations, especially for tax aggressive firms. These results are concentrated in firms that have a greater demand for political connections or firms that have higher potential reputational costs. In summary, this study suggests that firms strategically use corporate philanthropy to respond to increased tax enforcement.