Importing corruption culture from overseas: Evidence from corporate tax evasion in the United States

Abstract

We study how cultural norms and enforcement policies influence illicit corporate activities. Using confidential Internal Revenue Service (IRS) audit data, we show that corporations with owners from countries with higher corruption norms evade more tax in the U.S. This effect is strong for small corporations and decreases as the size of the corporation increases. In the mid-2000s, the United States implemented several enforcement measures to increase tax compliance. We find that these enforcement efforts were less effective in reducing tax evasion by corporations whose owners are from corrupt countries. This suggests that cultural norms can be a challenge to legal enforcement.