Do tax expenses crowd in or crowd out corporate social responsibility performance? Evidence from Chinese listed firms

Abstract

Two strands of literature explore the relationship between corporate social responsibility and tax expenses, resulting in opposing ideas that tax expenses either crowd in or crowd out corporate social performance. This study attempts to reconcile both points of view by proposing a mixture effect framework and introducing government subsidies as an extra explanatory variable to help to identify both the crowding-in and crowding-out effect. Based on a panel data study of listed firms in China, our results confirm that both crowding-in and crowding-out effects exist simultaneously. Besides, for overall corporate social performance, the crowding-in effect of tax expenses prevails over the crowding-out effect, but this result is diverse in varied components of corporate social responsibility. By identifying impacts from tax practice on corporate social performance, this paper extends the empirical studies on corporate social responsibility performance determination with a new approach, thus proposing a further examination of the association between corporate social responsibility and tax expenses.