Do Firms Change Their Tax Avoidance After the Tax Cuts and Jobs Act of 2017?

• In Event: Taxation

Abstract

This paper aims to examine whether firms have decreased their tax avoidance practices after the Tax Cuts and Jobs Act (TCJA) was enacted. Using the listed companies for the time period around the implementation of the TCJA, this study finds that firms engaged in less tax avoidance activities after the TCJA, as evidenced by (1) a lower permanent book-tax difference; (2) a lower total book-tax difference; and (3) lower levels of current and future unrecognized tax benefits. Moreover, this study finds that the implementation of the TCJA increased corporate investments in 2019, which in turn increased firm revenue, pre-tax earnings, and, consequently, increased corporate tax payments. Collectively, evidence from this study highlights the impact of the TCJA on corporate taxes.

Authors

• Tao Zeng, Wilfrid Laurier University

• Yan Jin, University of Central Oklahoma