The Geography of Corporate Tax Avoidance.

Abstract

Prior literature documents that corporate policies, especially those that involve unethical choices, tend to vary geographically. We examine whether firms' geographical locations have explanatory power regarding why some firms are more likely to engage in tax avoidance activities and find consistently significant location fixed effects on multiple measures of firms' tax avoidance behaviour. Additional analyses show that the location fixed effects are more pronounced for firms that have been located in a certain geographic area for longer and that have lower geographic diversification. We then explore a range of regional characteristics as determinants of location fixed effects and find some evidence that location effects are correlated with the local education level of the workforce population, distance to the Internal Revenue Service (IRS) supervision, and weather patterns.