AAA Spark Meeting of Regions

Is There Consumer Backlash to Negative Tax News? Evidence from Household Purchases

• In Event: Tax News: Empirical Studies and Implementing it in the Classroom

Abstract

Although prior research argues that consumer backlash is a potential factor constraining aggressive tax planning, there is only limited empirical evidence supporting this view. To test for consumer backlash, we use the setting of LuxLeaks, a highly publicized news story in 2014, which revealed that PepsiCo used secret deals in Luxembourg to minimize taxes. We examine whether this unexpected revelation of negative tax news led to a decrease in purchases of Pepsi-branded products by individual consumers across the United States. Using a difference-in-differences design calibrated around this event, we examine millions of soda purchases made by individual U.S. households. We do not find any evidence that purchases of Pepsi-branded products, relative to purchases of other soda (e.g., Coca-Cola, Dr. Pepper, etc.), declined following LuxLeaks. We also perform numerous cross-sectional tests based on household or geographic characteristics (e.g., income, education, organic product purchases, and political orientation), but do not find evidence of a decline in purchases of Pepsi-branded products after this event. Furthermore, we also examine national television expenditures by Pepsi and find no evidence of an increase in advertising following LuxLeaks, suggesting that Pepsi did not advertise their way out of this negative event. Overall, our results suggest that the decision by managers to constrain their aggressive tax planning (because of concerns about customer backlash) may be unwarranted.

Authors

• Lauren Chenarides, Arizona State University

• Dane M Christensen, University of Oregon

• David Graham Kenchington, Arizona State University - Tempe

• Mason Snow, Arizona State University - Tempe