This study explores empirically the effects of corporate income taxes on the incentive to invest in corporate social responsibility (CSR) activities. We estimate the relation between CSR ratings and firm‐specific corporate effective tax rates for a large sample of nonfinancial‐listed companies from 15 European countries during 2006–2016. By employing an instrumental variable approach, we find that average effective tax rates are negatively correlated with CSR ratings. Our findings are also consistent under additional tests and robustness checks. We, therefore, can provide suggestive evidence that corporate taxation discourages corporate socially responsible behaviour. At the same time, in a tax policy perspective, our analysis suggests how countries could encourage through the tax system the corporate provision of sustainable investments.

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Tax expenditures (TEs) are preferential tax treatments granted to specific individuals or categories of households, with the aim of achieving social and economic goals. They are widely used by EU Member States. However, their fiscal and equity impacts are not always clear and their effectiveness and efficiency as a policy instrument need to be carefully evaluated, especially in the present context of constrained public finances. This article quantifies the fiscal and equity effects of social TEs related to housing, education and health in 28 European countries making use of EUROMOD, the EU-wide microsimulation model. We find a variety of effects, in terms of sign and magnitude, across Member States, and within these, among types of households. Overall, our findings suggest that the impact of TE on tax revenues and on income inequalities can be sizable. The redistributive impact of removing TEs can go in both directions, either on the progressive or regressive side, depending on the country and the TE considered.

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