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• 15 Dec 2020
• Working Paper Summaries

Designing, Not Checking, for Policy Robustness: An Example with Optimal Taxation

The approach used by most economists to check academic research results is flawed for policymaking and evaluation. The authors propose an alternative method for designing economic policy analyses that might be applied to a wide range of economic policies.

• 31 Aug 2020
• Research & Ideas

State and Local Governments Peer Into the Pandemic Abyss

State and local governments that rely heavily on sales tax revenue face an increasing financial burden absent federal aid, says Daniel Green. Open for comment; 0 Comments.

• 12 May 2020

Elusive Safety: The New Geography of Capital Flows and Risk

Examining motives and incentives behind the growing international flows of US-denominated securities, this study finds that dollar-denominated capital flows are increasingly intermediated by tax haven financial centers and nonbank financial institutions.

• 01 Apr 2019
• What Do You Think?

Does Our Bias Against Federal Deficits Need Rethinking?

SUMMING UP. Readers lined up to comment on James Heskett's question on whether federal deficit spending as supported by Modern Monetary Theory is good or evil. Open for comment; 0 Comments.

• 20 Mar 2019

In the Shadows? Informal Enterprise in Non-Democracies

With the informal economy representing a third of the GDP in an average Middle East and North African country, why do chronically indebted regimes tolerate such a large and untaxed shadow economy? Among this study’s findings, higher rates of public sector employment correlate with greater permissibility of firm informality.

• 30 Jan 2019

Understanding Different Approaches to Benefit-Based Taxation

Benefit-based taxation—where taxes align with benefits from state activities—enjoys popular support and an illustrious history, but scholars are confused over how it should work, and confusion breeds neglect. To clear up this confusion and demonstrate its appeal, we provide novel graphical explanations of the main approaches to it and show its general applicability.

• 02 Jul 2018

Corporate Tax Cuts Don't Increase Middle Class Incomes

New research by Ethan Rouen and colleagues suggests that corporate tax cuts contribute to income inequality. Open for comment; 0 Comments.

• 13 May 2018

Corporate Tax Cuts Increase Income Inequality

This paper examines corporate tax reform by estimating the causal effect of state corporate tax cuts on top income inequality. Results suggest that, while corporate tax cuts increase investment, the gains from this investment are concentrated on top earners, who may also exploit additional strategies to increase the share of total income that accrues to the top 1 percent.

• 08 Feb 2018

What’s Missing From the Debate About Trump’s Tax Plan

At the end of the day, tax policy is more about values than dollars. And it's still not too late to have a real discussion over the Trump tax plan, says Matthew Weinzierl. Open for comment; 0 Comments.

• 24 Oct 2017

Tax Reform is on the Front Burner Again. Here’s Why You Should Care

As debate begins around the Republican tax reform proposal, Mihir Desai and Matt Weinzierl discuss the first significant tax legislation in 30 years. Open for comment; 0 Comments.

• 08 Aug 2017

The Role of Taxes in the Disconnect Between Corporate Performance and Economic Growth

This paper offers evidence of potential issues with the current United States system of taxation on foreign corporate profits. A reduction in the US tax rate and the move to a territorial tax system from a worldwide system could better align economic growth with growth in corporate profits by encouraging firms to invest domestically and repatriate foreign earnings.

• 07 Nov 2016

Corporate Tax Strategies Mirror Personal Returns of Top Execs

Top executives who are inclined to reduce personal taxes might also benefit shareholders in their companies, concludes research by Gerardo Pérez Cavazos and Andreya M. Silva. Open for comment; 0 Comments.

• 18 Apr 2016

Popular Acceptance of Morally Arbitrary Luck and Widespread Support for Classical Benefit-Based Taxation

This paper presents survey evidence that the normative views of most Americans appear to include ambivalence toward the egalitarianism that has been so influential in contemporary political philosophy and implicitly adopted by modern optimal tax theory. Insofar as this finding is valid, optimal tax theorists ought to consider capturing this ambivalence in their work, as well.

• 20 Nov 2015

Impact Evaluation Methods in Public Economics: A Brief Introduction to Randomized Evaluations and Comparison with Other Methods

Dina Pomeranz examines the use by public agencies of rigorous impact evaluations to test the effectiveness of citizen efforts.

• 07 May 2014

How Should Wealth Be Redistributed?

SUMMING UP James Heskett's readers weigh in on Thomas Piketty and how wealth disparity is burdening society. Closed for comment; 0 Comments.

• 08 Sep 2009

The Height Tax, and Other New Ways to Think about Taxation

The notion of levying higher taxes on tall people—an idea offered largely tongue in cheek—presents an ideal way to highlight the shortcomings of current tax policy and how to make it better. Harvard Business School professor Matthew C. Weinzierl looks at modern trends in taxation. Key concepts include: Studies show that each inch of height is associated with about a 2 percent higher wage among white males in the United States. If we as a society are uncomfortable taxing height, maybe we should reconsider our comfort level for taxing ability (as currently happens with the progressive income tax). For Weinzierl, the key to explaining the apparent disconnect between theory and intuition starts with the particular goal for tax policy assumed in the standard framework. That goal is to minimize the total sacrifice borne by those who pay taxes. Behind the scenes, important trends are evolving in tax policy. Value-added taxes, for example, are generally seen as efficient by tax economists, but such taxes can bear heavily on the poor if not balanced with other changes to the system. Closed for comment; 0 Comments.

• 02 Mar 2007

What Is the Government’s Role in US Health Care?

Healthcare will grab ever more headlines in the U.S. in the coming months, says Jim Heskett. Any service that is on track to consume 40 percent of the gross national product of the world's largest economy by the year 2050 will be hard to ignore. But are we addressing healthcare cost issues with the creativity they deserve? What do you think? Closed for comment; 0 Comments.

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How to Conduct Federal Tax Research

IN THIS ARTICLE

What is tax research and why is it necessary?

What tax research methodology should i use, how can i conduct tax research if i’m new to the topic or issue, how should i use technology to improve my tax research.

[Learn more about Bloomberg Tax Research tools to help you recommend and make the right tax planning decisions and strategies.]  

Why is tax research so important? Because it’s impossible to memorize the entire Internal Revenue Code (IRC) and the way it changes over time. Add to that the regulations and other interpretive rules that are necessary to implement the statutory rules of the IRC, and it can be extremely difficult to find everything you need to effectively communicate your findings to stakeholders. And that’s only federal tax law.

That’s why even experienced tax professionals turn to a comprehensive resource like Bloomberg Tax Research as they go through the steps of the tax research process. Bloomberg Tax Research pairs the proven expertise and perspective of its network of 1,000+ leading tax practitioners in our renowned Tax Management Portfolios with integrated news, in-depth analysis and insights, primary sources, and practice tools to help you understand complex tax topics and make informed decisions.

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The purpose of tax research is to help you properly define the tax effect or impact of certain tax positions. The results help your company and/or your clients make informed decisions for tax strategies, planning, and compliance. Tax research can also help you prepare for an IRS audit.

Tax research identifies relevant binding and persuasive authorities for a specific point of tax law or issue. For tax issues, this includes legislative, administrative, and judicial authorities.

When you conduct tax research, you’re looking for binding authorities (also known as controlling or mandatory authorities) and persuasive authorities. Binding authorities are anything that a court must follow (such as constitutions, legislation, and some court decisions depending on the jurisdiction) because they bind the court. Persuasive authorities are anything that the court may follow (including some cases, statutes, and regulations, but also opinions, law review articles, and other secondary sources) but does not have to follow.

There’s another categorization as well. Primary sources are source law such as statutes, regulations, and case law. Secondary sources are discussions of source law such as law review articles.

Given all the different sources of information you’ll need for your research, the most efficient way to approach it is to rely on a comprehensive resource that brings together everything you need in one place.

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It’s important to follow proven steps for conducting tax research. Following a trusted process can help you make sure you’ve done your due diligence when researching tax issues.

The steps for tax research include:

• Identifying and defining the facts and issues
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• Developing conclusions and recommendations
• Communicating the results

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Our Tax Management Portfolios help you understand the potential implications and considerations for both tax and nontax issues. You get commentary as well as citations to relevant authorities – from statutes to cases to administrative pronouncements.

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The first steps in the tax research process are to analyze the available facts, pinpoint the legal issues involved, and formulate an appropriate tax question (or questions) to be researched. But what if you don’t have enough knowledge to be able to identify the specific issues to research?

That’s where it helps to have explanations and analysis from more than 1,000 expert tax practitioners at your fingertips. You can start with an overview of the more general topic in Bloomberg Tax Management Portfolios or Tax Practice Series.

The overview can help you formulate initial keywords and phrases to further explore the topic. Extensive planning points, practical examples, what-if scenarios, and comments by our expert authors help you confidently navigate and understand the issue.

Then, you can find the latest news on the topic from the Daily Tax Report , a comprehensive source for news on federal, state, and international legislative, regulatory, and judicial tax-related developments, including pensions and accounting. Daily Tax Report’s extensive network of Capitol Hill reporters and national correspondents keep you up to date with the news that impacts your company and clients as it happens.

With the Federal Tax Developments Tracker, you can track administrative documents, cases, legislation, and regulation across a wide breadth of topics in a concise summary that links to the source document. It’s the most timely and up-to-date place to find federal tax developments

Our practice guides are another place to gain a baseline understanding of a topic. These concise, easy-to-use, practitioner-written guides give you a quick overview of a topic. They’re linked to relevant Tax Management Portfolios for a deeper dive, and contain downloadable checklists.

With Bloomberg Tax, we can conduct our own research, write a position paper, and develop a conclusion before asking for a review or opinion from an external advisor.

While the internet contains nearly 5 million terabytes of data, you shouldn’t rely on a service like Google for your tax research. That’s because Google doesn’t vet the information it’s indexing. There are no standards for quality and accuracy. There’s also no curation of content to make sure it’s relevant, up to date, and from trusted sources.

Which is why research technology specifically developed and managed for tax professionals will always be the most efficient, expedient, and comprehensive approach to tax research. Bloomberg Tax Research is a comprehensive tax research and planning solution designed by tax practitioners for tax practitioners.

With Bloomberg Tax Research, you can improve your research by:

• Quickly navigating between the IRC, analysis, and related tax research tools
• Using Practice Guides & Checklists for a quick overview of the topic
• Relying on the BCite citatory tool to help you document your research and conclusions
• Reading Daily Tax Report to stay up to date with the news as it happens
• Staying current with trackers to automate and track upcoming legislation and changes

Corporate Tax Resources

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As companies and nations aim to avoid disputes over international taxes, the multilateral instrument (MLI) aims to preserve the role of bilateral income tax tre...

What Qualifies for Business Energy Tax Credits?

The Inflation Reduction Act introduced a variety of new corporate energy tax credits and deductions. See what qualifies for federal energy tax credits in 2023.

Inflation Reduction Act: New Corporate Alternative Minimum Tax and Tax Credits

The Inflation Reduction Act imposed a new corporate alternative minimum tax and expanded tax credits. This article details key corporate tax planning takeaways.

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Is analytical tax research alive and kicking? Insights from 2000 until 2022

• Original Paper
• Open access
• Published: 26 June 2023
• Volume 93 , pages 1149–1212, ( 2023 )

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• Rainer Niemann 1 &
• Mariana Sailer   ORCID: orcid.org/0000-0002-0351-6876 2  

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This literature review evaluates the development and impact of analytical tax research (ATR) from 2000 until 2022. Based on 345 research papers, we (1) identify emerging and declining research topics in the area of ATR, (2) examine the trends in publication outlets and author teams, and (3) analyze citation metrics at both the level of articles and authors to measure perception and impact of ATR. First, we find that rather new topics, such as the impact of taxation on entrepreneurship, innovation and R&D, have begun to attract attention. Second, tax journals are not the preferred outlet for ATR and author teams exhibit a decreasing gender imbalance. Third, citation metrics are highly centered on specific publications and individual authors. Moreover, publications that appeared in economics and finance journals generate disproportionately large citation numbers compared to those that were published in tax, accounting and business research journals. Authors from Anglo-American institutions have significantly more citations than researchers from German-speaking countries. We find that ATR does not form a closed community. It unites researchers from different backgrounds based on their— sometimes nonrecurring—thematic interest in the effects of taxation on economic decisions.

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1 Introduction

Analytical tax research (ATR) has been a traditional strength of German and Austrian business tax research (BTR). Footnote 1 Since the 1960s, German-speaking academics have used formal mathematical models to discover or examine various tax effects, especially on investment and financing decisions. Footnote 2 As most of their studies were written and published in German until the 1990s, BTR had remained largely separate from the international tax research community before then. Footnote 3 However, the discipline has been subject to the growing importance of publishing internationally during the past two decades.

This literature review analyzes how ATR in particular has developed during this period, and how large its impact has been. We examine ATR from a meta-perspective to identify current developments, citation patterns, and emerging and declining trends in a changing research environment. This systematic overview of ATR studies enables us to pinpoint avenues for future research and assess the potentials for their success. Specifically, we investigate the overall quantity of research output and research topics in ATR (Sects.  3 and 4 ), the key characteristics of the analytical models (Sect.  4 ), the development of ATR since 2000 (Sect.  5 ), the impact of publications (Sect.  6 ) and the impact of individual researchers, both measured by their respective citations (Sect.  7 ).

Earlier reviews of tax literature (Hundsdoerfer et al. 2008a for a comprehensive review of the German BTR literature) often focus on empirical research (e.g., Shackelford and Shevlin 2001 ; Hanlon and Heitzman 2010 ). Some examine a clearly defined set of research questions (e.g., Lietz 2013 for tax avoidance; Bauer et al. 2018 for principal-agent models with taxes; Wilde and Wilson 2018 for corporate tax planning; Sawyer and Tan 2020 for tax research in New Zealand; Jacob 2022 for empirical studies on real effects of taxation); others focus on specific journals without any methodological or topical restrictions (e.g., Betting and Wagner 2013 ; Ertel 2017 ). However, findings in empirical tax research do not automatically embrace findings in ATR. Analytical and empirical tax research differ from one another in numerous ways. Foremost, each one employs different methods and addresses different audiences outside academia. Model-based tax research deals with the decision-making of both individual and corporate taxpayers and legislators; empirical tax research primarily informs tax authorities on the consequences of certain taxes and evaluates these consequences for affected taxpayers (Wagner 2022 ). Our literature review enhances the understanding of BTR by a distinct examination of the focus and impact of ATR since 2000 under a special consideration of German contributions. Its insights are useful for established analytical tax researchers, empirical tax researchers and junior researchers. For established analytical tax researchers, this review provides insights in the development of their discipline. For empirical tax researchers, it helps to learn about research topics that have reliable theoretical underpinnings and might deserve additional empirical evaluation. For junior researchers, it identifies starting points for their own research and encourages them to evaluate their potential future success.

The goal of our literature review is to document the development of ATR over time and analyze its academic perception and its boundaries—under special consideration of the development of German contributions. Thus, our review focuses on analytical, i.e. model-based, tax research in both domestic and international journals and is not limited to specific research questions or topics. Our review comprises 345 publications in ATR from 2000 to 2022. While the overall number of publications seems rather small for a period of almost 23 years, the observation that analytical research represents only a minor proportion of total research output is congruent with other disciplines. For example, in audit research only 2.2% of all publications rely on analytical research methods (Köhler and Ma 2018 ).

All the analyses in the 345 publications use formal models. None of these papers is primarily empirical or normative, or has a sole economics or finance focus. We explain the sample selection process in detail in Sect.  2 . Despite the restrictions with regard to the primary research focus, we find that publications that investigate taxation and its link to investment and financing decisions (still) constitute the major topic in ATR, with 26.1% (finance) and 19.7% (investment) of all 345 studies. Apart from this observation, the topics in ATR are partly novel and for sure diverse—they comprise research on personnel planning, tax neutrality, transfer prices, pensions, and the role of advisors amongst others. Overall, the developments in ATR follow Shackelford and Shevlin’s ( 2001 :324) observation for empirical tax research: “Instead of a trunk with major branches, the tax literature grew like a wild bush, springing in many directions.”

We present three major observations in the discipline of ATR itself between 2000 and 2022. First, tax journals are not the preferred outlet for ATR articles, which tend to appear in business and economics journals—even though no study in our review has a pure economics focus. Second, English as publication language has become dominant over German since 2010, whereas both languages have been on par before. Third, author teams are increasingly gender balanced. However, the majority of research teams remains purely male.

In line with other citation studies (e.g., Brown and Gardner 1985 ; Lindquist and Smith 2009 ), we find that the distributions of citations per publication and per author are highly right-skewed, meaning that a few publications drive the overall impact of ATR. The top 20 papers, less than 6% of all 345 publications in our review, account for up to three quarters of all citations, depending on the citation database. In contrast, about half of all ATR publications are hardly ever cited (or are not included in the relevant citation databases). Along the same lines, the citation numbers are highly researcher-centered. Depending on the database, up to 65% of all citations as measured at the author level are attributable to the 25 most frequently cited researchers. Those authors constitute only roughly 6% of all authors in our review and are not associated with German-speaking institutions for the most part. Footnote 4 We suspect that German-speaking researchers in ATR do not follow a culture of mutual citations, keeping their measurable impact in the—even national—scientific community low. Moreover, their research often informs practitioners, who use the knowledge, but of course do not generate citations.

Overall, ATR publications are very heterogeneous apart from their common research method. Fragmented ATR communities in accounting, business research, economics, and finance have limited overlap. So far, BTR has only partly integrated into the different international communities. One reason is that analyses of a national tax law—while important from a domestic perspective—are often of limited interest and accessibility to an international audience. We conclude that ATR makes important contributions for audiences also outside the scientific community, can provide theoretical foundation for empirical tax research, but does not constitute a closed community, as also authors who are primarily economists, or finance or accounting researchers contribute to ATR.

The paper proceeds as follows: Sect.  2 describes the methodology of our literature review. Section  3 outlines the research areas in ATR. Section  4 explains their specific research focus and respective model characteristics. Section  5 extends the overview by a quantitative analysis on the development of ATR. Section  6 analyzes the citations of ATR papers. Section  7 examines the citations of individual authors and identifies their common characteristics. Section  8 pinpoints promising avenues for future research. Section  9 summarizes and concludes.

2 Methodology

2.1 approach.

We identified the relevant literature for our literature review in a multi-step approach. First, we determined the scope of our search. We enclosed years from 2000 onwards to, first, give an extensive and comprehensive, yet still manageable overview of ATR and, second, capture rather new developments in ATR since the turn of the millennium. To establish an external benchmark for the papers’ quality, we considered published articles only and excluded working papers. For the selection of journals, we followed the VHB-Jourqual3 in the area of taxation (WK STEU). The VHB-Jourqual3 was published by the German Academic Association for Business Research (VHB) Footnote 5 in 2015. It ranks German and international scientific business and economics journals by means of letters (A + down to D). We included all 57 journals with a C-rating or higher from the list and we excluded all D-rated journals to ensure focus on research-centered articles. Additionally, we included 11 high-quality journals without a ranking (no ranking “n.r.”) that were mentioned in the VHB-Jourqual3 rating, but rated by only a few researchers. Footnote 6 Furthermore, we extended the list of journals by 15 more magazines from the area of general business administration (ABWL) and three from the area of accounting (WK RECH), which have featured tax-related articles previously. Supplemental material 1 shows a list of all potentially relevant journals.

We decided to use the Scopus database for an automated search request, since it covers most of the potentially relevant journals. Footnote 7 The Scopus search request, which we provide as supplemental material 2 in the Appendix, resulted in 1,776 search hits. To the best of our knowledge, neither Scopus, nor any other publications database, allows for the pre-filtering of articles by research method. Therefore, we manually sorted out all articles, which primarily apply non-analytical research methods, i.e., archival-empirical, experimental and normative methods, or have their main emphasis on economics topics, e.g., considerations about welfare, general equilibria and tax competition. For those journals that Scopus does not cover or only covers for specific years, we manually went through all respective annual tables of contents to detect ATR-publications (1,748 pages in total). We provide the list of all journals that include ATR articles that are part of our literature review as supplemental material 2 in the Appendix.

Our final set of publication includes 345 articles. Table  1 summarizes the selection process.

2.2 Limitations

Each step of the literature selection process requires decisions that can appear somewhat arbitrary. Our fundamental choice to use the VHB-Jourqual3 can be contestable, as the rating comprises also domestic journals and does not necessarily reflect the international relevance of the journals. However, the choice corresponds to our aims to assess the development of German ATR and evaluate its integration into international research communities. Hence, the wide coverage of the VHB-Jourqual3 seems helpful for our research purposes.

Our next basic decision is to cut the inclusion of journals at a C-rating in the VHB-Jourqual3. C-journals are “renowned scientific journals” according to VHB ( 2022 ). Furthermore, we viewed journals, which are linked to tax research (WK STEU), but not formally rated (see supplemental material 1 in the Appendix), as relevant for our analyses, since the lack of a formal rating is only due to a low respondent number, not due to a practitioner-focus. In contrast, D-journals—although classified as “scientific journals”—are typically practitioner-oriented without a rigorous review process. Thus, the cutoff at a C-rating reflects the focus of our review on academic ATR. In our sample, only nine articles appeared in journals without a rating. Due to the low number of articles without a rating, a possible impact on the overall sample quality is negligible. At the same time, some highly respected journals are not included in the VHB-Jourqual3 ranking and therefore not part of our review. Examples are Quarterly Journal of Economics , Review of Economic Studies , Journal of Economic Perspectives , Foundations and Trends in Accounting , Journal of Law , Finance and Accounting or Plos one . However, the number of ATR articles excluded due to this limitation should be small, since the journals put their focus on finance and economics research, which is not part of our review.

Next, we turn to the implementation and execution of our search for relevant literature. For the automated search in Scopus, we used keywords to narrow down the initial search result of more than 91,000 articles. Given that our keyword list (see supplemental material 2 in the Appendix) is quite extensive, the number of ignored publications should be small. However, first, for some journals Scopus exhibits gaps for several volumes; second, Scopus does not cover some of the relevant—mainly German—journals at all (see supplemental material 1 in the Appendix). In these cases, we compensated gaps in the database by means of hand-collection. Since such a manual search might be superior to an automated search, we expect German papers (with domestic focus) to be slightly overrepresented in our review. With regard to the citation analyses, the gaps in Scopus coverage prevented us from conducting an automated comprehensive cross-citation analysis that is applied in some bibliometric studies as citation information is obviously missing in parts. Footnote 8

Furthermore, no commonly used database offers to restrict the search of publications to certain research methods. Footnote 9 Thus, we had to scrutinize the employed research methods of the publication manually. If a study used analytical and empirical methods equally, we still included it. Footnote 10 For international journals, such an assessment was relevant occasionally. For some German journals (especially for Betriebswirtschaftliche Forschung und Praxis , BFuP, and Steuer und Wirtschaft , StuW ), we had to define which type of calculus counts as a formal model. We did not count simple numerical examples, simulations or present value calculations as models and rather required a minimum level of analytical abstraction. When in doubt, we included the publication, so that, again, German journals can be overrepresented in our study. In the vast majority of cases, the categorization is unambiguous. However, we do not claim total objectivity.

Moreover, we are aware that the separation of public economics and BTR is ambiguous. However, some topics do not belong to BTR in general, such as tax competition, regulatory competition, general equilibrium models, welfare analyses, optimal taxation or tax incidence. We used the respective keywords in our search strategy to exclude economics papers that deal with these topics (see supplemental material 2 in the Appendix). Applying the four-eye-principle, we manually checked each paper on its research method and topic and eliminated it if it clearly belonged to the economics literature in our view. Again, we do not claim total objectivity and cannot exclude that other researchers would come to different conclusions in some (rare) cases, but tried to work as rigorous as possible.

3 Classification of topics in analytical tax research

To organize the papers in our literature review, we follow Wagner’s ( 2004 ) thoughts on the distinction of tax research with regard to its general topics and examined questions (Fig.  1 ). We categorize the publications by means of their research topic to allow a precise, but not overwhelmingly detailed classification. It enables us to document areas of interest and pinpoint promising paths for further investigation. Again, we want to emphasize that only published papers constitute the basis for our analysis. Their number is a function of research activity and serves as a proxy for current interest of journals, readers, and authors.

Topics of analytical tax research

In Sect.  4 , we give an overview of the papers in our review in relation to their main research topic. As visualized in Fig.  1 , the main research topics comprise issues of (4.1) tax avoidance, tax evasion or profit shifting, (4.2) transfer prices, (4.3) repatriation, (4.4) the choice of legal form for a company, (4.5) personnel planning in a company, (4.6) pensions and provisions, (4.7) the role of tax advisors, (4.8) entrepreneurship, innovation and research and development (R&D), (4.9) tax neutrality, (4.10) tax burden, (4.11) private decisions, (4.12) finance or (4.13) investment. Table 2 summarizes the number of publications in each main categories, broken down by two full decades (2000 to 2009; 2010 to 2019) and the currently ongoing decade (2020 and onwards). We are aware that the current decade has only started in 2020, so final assessments for the current decade would be premature.

As a caveat, the categorization of research topics is subject to opinions. The reader might prefer a more or less detailed classification or even different categories. Whenever a paper covers more than one category, we assigned it in accordance with our view of the paper’s focus. We concede that readers can disagree with our perception.

In contrast to empirical tax research (Jacob 2022 ), finance- and investment-related analyses are a major research area in ATR from 2000 to 2022 (jointly 158 papers or 45.8% of all papers). In the subsequent places follow considerations about tax avoidance, tax evasion and profit shifting (16.2%), tax neutrality (7.5%), tax burdens (7.5%), personnel planning (6.4%), and transfer prices (4.6%). Figure  2 depicts the publishing activity in the different research topics throughout the last 23 years and highlights several shifts.

Shares of research topics over time

Whereas ATR on the role of tax advisors had already attracted some interest in the 1990s (Klepper et al. 1991 ; Melumad et al. 1994 ; Beck et al. 1996 ; Phillips and Sansing 1998 ), this area appears under-investigated with only three papers in our sample. Analyses of innovation-related topics (i.e., entrepreneurship, innovation and R&D) recently increased in popularity (11 papers). In contrast, publications on the topics of repatriation and choice of legal form for companies remain on a stable, but low level. Analytical research on tax avoidance and on tax evasion and profit shifting remain evergreen topics.

Figure  3 excludes the two dominant areas of finance- and investment-related ATR, thereby highlighting the importance of analytical research on tax avoidance, evasion and profit shifting.

Shares of research topics over time without finance & investment

Overall, about 92% of all papers in our review examine some form of income or profit tax. Apart from profit taxes, inheritance taxes play a (minor) role. A few articles consider wealth-related taxes in addition or as an alternative to profit taxes (e.g. Sureth and Maiterth 2008 ; Diller et al. 2015 ; Niemann and Sureth-Sloane 2019 ; Bjerksund and Schjelderup 2021 ). One paper in the review analyses the consequences of a tobacco tax, another paper also takes the value-added tax into account, but other types of taxes do not seem to attract researchers’ attention.

4 Overview on the topics in analytical tax research

In this section, we give an overview of the papers within each research area and summarize the related key figures. The key figures comprise the ratings of the journals, in which the publications appeared, and the characteristics of the models in the respective analyses, i.e., the number of periods, the underlying probability assumptions (deterministic or stochastic models) and the territorial scope (domestic versus cross-border). Table 3 presents a summary.

4.1 Tax avoidance, tax evasion and profit shifting

ATR on tax avoidance, tax evasion and profit shifting evolves around the question how and under which circumstances both companies and individuals (can) minimize their tax burden. The works of Hines ( 2004 ), Desai and Dharmapala ( 2006 ), Jacob et al. ( 2021 ) examine the determinants of tax avoidance or the related governmental reactions. While the aforementioned analyses focus on firms, considerations about the minimization of inheritance tax center on individuals (Jansen and Gröning 2003 ; Nordblom and Ohlsson 2006 ; Jansen 2007 ; Kundisch et al. 2007 ; Diller 2008a ; Diller and Kittl 2016 ; Diller et al. 2019 , 2021 ). Yim ( 2009 ) evaluates the most efficient usage of an audit budget from an inspector’s perspective.

In contrast to studies on tax avoidance, examinations of tax evasion usually integrate the possibility for the government to sanction taxpayers. The topic of tax evasion comprises publications that examine circumstances and facilitation of tax evasion and potential connections between tax compliance and governmental audits (Mills and Sansing 2000 ; Feltham and Paquette 2002 ; Crocker and Slemrod 2005 ; Snow and Warren 2005 ; Bayer 2006 ; Goerke 2007 ; Bayer and Cowell 2009 ; Diller et al. 2013 ; Lee 2015 ; Levaggi and Menoncin 2016 ; Immordino and Russo 2017 ; Di Gioacchino and Fichera 2020 ). Furthermore, these analyses examine the role of firm characteristics (Lee 2001 ; Çule and Fulton 2009 ), joint tax evasion (Boadway et al. 2002 ), firm investments (Baumann and Friehe 2010 ), uncertainty (Caballé and Panadés 2005 ; Bernasconi et al. 2015 ; Diller and Lorenz 2015 ; Bag and Wang 2021 ), interaction and coordination among taxpayers (Bernasconi and Zanardi 2004 ; Garay et al. 2012 ; Sanchez 2015) and targeted audits (Levaggi and Menoncin 2012 ; Lipatov 2012 ; Phillips 2014 ; Hashimzade et al. 2016 ). Other works focus on the impact of the underground economy (Blackburn et al. 2012 ) or corruptibility (Cerqueti and Coppier 2015 ).

The topic of profit shifting and minimization of reported profits for tax purposes is of interest in ATR (Hundsdoerfer 2000 ; Gallmeyer et al. 2006 ; Klassen and Sansing 2006 ; Schreiber 2009 ; Dietrich and Kiesewetter 2011 ; Schmidtmann 2012 ; Freidank 2016 ; Gresik 2016 ; Kiesewetter et al. 2018 ; Bloch and Demange 2021 ), also with regard to the usage of transfer prices in profit shifting (Gresik and Osmundsen 2008 ; Halperin and Srinidhi 2010 ; Autrey and Bova 2012 ). Furthermore, Yoon ( 2000 ) analyses the role of litigation cost reimbursement rules on the number of settlements in cases on aggressive corporate tax reports, De Simone et al. ( 2013 ) evaluate the potential of cooperative tax-compliance programs and Bachmann et al. ( 2016a ) examine the link between R&D offshoring and tax incentives.

Of the 56 articles in this area, 20 appeared in A + or A-rated journals. Of the remaining 36 papers, 26 were published in B, seven in C-journals, three in journals without rating. Footnote 11 25 of the models are multi-period. 33 of the models are stochastic and 10 work with cross-border or international setups. In 25 of the models, the government acts a strategic player in a tax compliance game.

4.2 Transfer prices

The analytical research area of transfer prices has attracted constant interest throughout the last decades. In parts, it is closely related to the topic of tax avoidance and profit shifting (Sansing 2001 ; Hyde and Choe 2005 ; Kari and Ylä-Liedenpohja 2005 ; De Waegenaere et al. 2006 ; Kiesewetter and Mugler 2007 ; Mammen 2011 ; Martini et al. 2012 ; Dürr and Göx 2013 ; Afik and Lahav 2016 ; Große 2018 ; Juranek et al. 2018 ; Reineke et al. 2022 ), but puts the transfer pricing itself into the research focus. Other examinations put their focus on the link between tax minimizing transfer prices and organizational structures (Narayanan and Smith 2000 ; Martini 2015 ; Löffler 2019 ; Reineke and Weiskirchner-Merten 2021 ).

Eight of all 16 articles appeared in A + or A-, four in B- and three in C-rated journals. Inherent to the topic, the vast majority of papers examines international settings. Eleven of 16 models span one period, nine are stochastic and two integrate the government as strategic player.

4.3 Repatriation

Only five articles (Altshuler and Grubert 2002 ; Dodonova and Khoroshilov 2007 ; De Waegenaere and Sansing 2008 ; Stiller 2013 ; Klassen et al. 2014 ) cover the topic of profit repatriation and related tax considerations. The number of publications might be so small as the topic is often bound to a U.S.-context that does not necessarily translate to other settings.

Two of the papers were published in A-journals, two in B-journals and one in a C-journal. All models consider timelines with at least two periods and, of course, refer to international settings. Two of the models use a probability distribution, none integrates a strategic governmental player.

4.4 Choice of legal form

Similar to the area of profit repatriation, ATR on the impact of taxation on the choice of companies’ legal forms attracts less interest currently. Most papers have an Austrian or German tax law background. The topic is wide and can relate to considerations about organizational form and international tax allocation mechanisms. However, it puts its research emphasis on the tax-minimizing design of company structures (Husmann and Strauch 2006 ; Eberhartinger and Pummerer 2007 ; Müller et al. 2010 ; Kudert et al. 2015 ; Blaufus et al. 2015 ; Scheffler and Zausig 2017 ) or evaluates this design (Müller and Semmler 2003 ).

Of all seven articles that cover the topic, five appeared in B-journals and two in C-journals. The ranking of the outlets reflects that this topic typically has a national tax law background, which might not be of interest for highly-ranked journals that demand generalizability of results. Four models use one-period settings, five are deterministic and three consider cross-border settings.

4.5 Personnel planning

The research topic of personnel planning deals with questions about employment, motivation and compensation of firm managers and the related impact of taxes. Agency conflicts in this context already received attention in the literature review by Bauer et al. ( 2018 ). In contrast to our review, the review by Bauer et al. ( 2018 ) also featured publications before 2000 and working papers. Amongst other works, their literature review covers papers by Halperin et al. ( 2001 ), Niemann and Simons ( 2003 ), Niemann ( 2008 ), Göx ( 2008 ), Radulescu ( 2012 ), Voßmerbäumer ( 2012 , 2013 ), Dietl et al. ( 2013 ), Martini and Niemann ( 2015 ), Meißner et al. ( 2014 ), Martini et al. ( 2016 ) and Krenn ( 2017 ). Publications by Niemann ( 2007 ), Ewert and Niemann ( 2012 ) and Schneider et al. ( 2021 ) are related to the topic of agency conflicts and taxation, but not part of the literature review by Bauer et al. ( 2018 ). Furthermore, ATR on personnel planning can comprise very specific considerations about motivation, e.g. the usage of work time accounts (Wellisch 2003a ) or equity-based compensation (Widdicks and Zhao 2014 ). Furthermore, it evaluates (tax) optimal implementation of different compensation types, such as options (Simons 2000 , 2001 ) or fringe benefits (Voßmerbäumer 2010 ), and examines country- or industry-specific effects (Pummerer and Steller 2016 ; Kroh and Weber 2016 ).

Of the 22 articles on personnel planning, four were published in A-, 16 in B-, and two in C-journals. Characteristic for principal-agent models, the great majority of the models, 17 of 22, makes single-period considerations, and is of stochastic nature with, again, 17 articles. Models in 19 articles use domestic settings.

4.6 Pensions and provisions

The category of tax-related considerations about pensions and provisions comprises ten publications—all of which are German (Brassat and Kiesewetter 2003 ; Wellisch 2003b ; Wrede 2003 ; Wellisch and Machill 2007 ; Blaufus and Eichfelder 2008 ; Schönemann et al. 2009 ; Suttner and Wiegard 2012 ; Scheffler 2016 ; Schätz-lein 2020 ; Gamm et al. 2020 ).

Seven of the papers appeared in B-journals, two in C-journals, one in a journal without a formal rating. Nine of the related ten models span more than one period, also nine are deterministic, and, again, nine have a domestic focus on Germany as their country of interest.

4.7 Role of tax advisors

All three papers on the role of tax advisors (Elitzur and Yaari 2021 ; Konrad 2021 ; Kaçamak 2022 ) were published during the last two years, two of them in B-journals. The topic seems to experience a revival in interest after the 1990s (Klepper et al. 1991 ; Melumad et al. 1994 ; Beck et al. 1996 ; Phillips and Sansing 1998 ), and accounts for a noticeable share in ATR publications in the 2020s of 12% (3 of 25 papers).

Two models are single-period; two are stochastic; all refer to national settings. The role of tax advisors is the only research area in which a majority of papers (two out of three) models the fiscal authorities as a strategic player.

4.8 Entrepreneurship, innovation, and R&D

Publications in the area of ATR on entrepreneurship, innovation and R&D tackle questions about entrepreneurial activity (Haufler et al. 2014 ; Fossen et al. 2020 ), investments in innovation (Williams et al. 2001 ; Bachmann and Baumann 2013 ; Haufler et al. 2014 ; d’Andria 2016; d’Andria 2019; Rupp 2020 ; Boadway et al. 2021 ) and R&D (McKenzie 2008 ; De Waegenaere et al. 2012 , 2021 ).

One paper appeared in a journal with A + rating, two papers in A-, six in B-, and two in C-journals. Six of the related models cover more than one period, six are deterministic and seven evolve around a domestic setting.

4.9 Tax neutrality

Considerations about tax neutrality have been popular among mostly German-speaking researchers—also before the starting year of our literature review. Neutrality considerations can refer to inheritance taxation (Hiller 2001 ), pension taxation (Kiesewetter and Niemann 2002 , 2003 ; Fuest and Brügelmann 2003 ), or shareholder taxation (König and Wosnitza 2000 ; Jacob 2009 ; Lindhe and Södersten 2012 ). Furthermore, tax neutrality papers deal with the impact of corporate taxation on investment decisions (Heinhold et al. 2000 ; König and Sureth 2002 ; Ruf 2004 ; Husmann 2007 ; Diller and Grottke 2010 ; Kanniainen and Panteghini 2013 ; Schreiber 2013 ; Hemmerich and Kiesewetter 2014 ; Schreiber and Stiller 2014 ), financing decisions (Maiterth and Sureth 2006 ; Kubota and Takehara 2007 ; Blaufus and Hundsdoerfer 2008 ; Rumpf 2009 ; Ruf 2010 ; Ott 2013 ). Furthermore, Knirsch ( 2007 ) proposes a theory-based measure for decision distortions caused by taxation. Although German authors dominate the topic in our literature review, tax neutrality seems to have gained a little more attention from non-German researchers recently (Bond and Devereux 2003 ; Hebous and Klemm 2020 ; Södersten 2020 ).

Only one of the 26 articles was published in an A-journal, but 21 in B- and 4 in C-journals. Since the top-rated journals only publish in English, a reason for the very low share of publications in top-rated (A + and A) journals lies in the German language that 15 of the articles in this topic use.

In 20 models, the authors use multi-period settings. Again, 20 models are deterministic and 21 models refer to domestic settings.

4.10 Tax burden

Examinations of tax burdens in ATR comprises the broad range of publications that evaluate the (monetary) costs that come with a specific tax or the related accounting methods from a taxpayers’ perspective. “Tax burden” does not refer to tax incidence, which we regard as an economics topic. Some articles investigate inheritance tax burdens (Brähler and Hoffmann 2011 ; Simons et al. 2012 ; Franke et al. 2016 ), other examine corporate tax burdens (Schreiber et al. 2002 ; Maiterth 2003 ; Eichfelder 2011 ; Müller et al. 2011 ; Ruf 2011 ; Musumeci and Sansing 2014 )—especially with regard to the Common Consolidated Corporate Tax Base “CCCTB” (Pummerer and Steckel 2005 ; Schreiber and Führich 2009 ; Ortmann and Sureth-Sloane 2016 ) or losses (Brähler et al. 2009 ; Becker and Steinhoff 2014 ). Moreover, three articles examine the effect of timing decisions (Panteghini 2004 ; Bachmann et al. 2016b ; Kiesewetter and Schätzlein 2019 ). Furthermore, a noticeable share of examinations deals with individuals’ tax burdens (Knobloch and Rümmele 2005 ; Diller 2006 ; Hechtner 2011 ; Diller et al. 2015 ; Glowienka 2015 ; Gandhi and Kuehlwein 2016 ; Fritz-Schmied et al. 2019 ). One article examines the effect of a tobacco tax on smuggling (Delipalla 2009 ) and one the effect of loss-offset restrictions on risk sharing (Djanani and Pummerer 2004 ).

Of all 26 articles, 21 were published in B-journals and five in C-journals, none in a top-rated journal. Similar to the ATR on tax neutrality—the vast majority of articles is written in German. Overall, 18 models are deterministic and 18 cover more than one period. Slightly more than 80% (21 of 26) of the models evaluate domestic settings.

4.11 Private decisions

The research area of private decisions in ATR covers all articles that concern the private life of individuals with regard to tax-related effects. Barigozzi et al. ( 2019 ) and Creedy and Gemmell ( 2020 ) evaluate how personal decisions are related to the tax assessment of (married) couples. Milligan ( 2003 ) examines how contribution limits affect savings in tax-preferred accounts. Desai et al. ( 2007 ) and Galmarini et al. ( 2013 ) deal with theft and related condemnation of individuals under different tax conditions.

One of the five articles was published in an A + -rated journal, another one in an A-journal, two in B-journals, one article appeared in a journal without rating. Three of the models are deterministic; three make single-period considerations; all models have domestic settings.

4.12 Finance

The area of finance-related articles constitutes the biggest topic in ATR, accounting for slightly more than 26% of all ATR publications from 2000 to 2022 according to our literature review. The topic can be divided into the subcategories “firm and asset valuation”, “valuation of tax shields”, “evaluation of tax burdens in firm valuation”, “choice of financial instruments” and “timing considerations”.

35 analyses concern firm and asset valuations (Scheffler 2001 , 2014 ; Bogner et al. 2002 ; Harris et al. 2001 ; Husmann et al. 2002 , 2006 ; Lund 2002 , 2014 ; De Waegenaere et al. 2003 ; Jonas et al. 2004 ; Kiesewetter and Lachmund 2004 ; Richter 2004 ; Streitferdt 2004 , 2010 ; Laas 2006 ; Rapp 2006 ; Schultze and Zimmermann 2006 ; Bachmann and Schultze 2007 ; Gröger 2007 ; Schultze and Dinh Thi 2007 ; Wilhelm and Schosser 2007 ; Hundsdoerfer et al. 2008b ; Muche 2008 ; Bauer et al. 2009 ; Eikseth and Lindset 2009 ; Kruschwitz and Löffler 2009 ; Piehler and Schwetz-ler 2010 ; Diller 2012 ; Schosser 2012 ; Diedrich 2013 ; Realdon 2013 ; Li et al. 2016 ; Dierkes and Schäfer 2017 ; Krause 2018 , 2019 ; Bjerksund and Schjelderup 2021 ; Goldbach et al. 2021 ).

Twenty-one publications deal with tax shields and their valuation (Fernandez 2004 ; Schultze 2005 ; Cooper and Nyborg 2006 ; Bachmann and Schultze 2008 ; Mai 2008 ; Eberl 2009 ; Förster et al. 2009 ; Liu 2009 ; Scholze 2010 ; Rauch et al. 2010 ; Watrin and Stöver 2011 ; Bachmann and Schultze 2011 ; Qi 2011 ; Brähler and Kühner 2012 ; Couch et al. 2012 ; Maßbaum et al. 2012 ; Streidtferdt 2013 ; Lampenius and Buerkle 2014 ; Krause and Lahmann 2016 ; Arnold et al. 2008 ; Kruschwitz and Löffler 2018 ). Twelve publications evaluate tax burdens in firm valuation (Eggert and Weichenrieder 2002 ; Kämpf 2003 ; Bogner et al. 2004 ; Gordon 2010 ; Menoncin and Panteghini 2010 ; Laitenberger 2003 ; Krapp and Wotschofsky 2004 ; Kruschwitz and Löffler 2004 ; Homburg et al. 2008 ; Schreiber and Mai 2008 ; Müller and Wiese 2010 ; Hechtner et al. 2011 ).

Eleven articles examine the choice of financial instruments (Altrock 2002 ; Klein 2004 ; McDonald 2004 ; Tsai 2005 ; Guenther and Sansing 2006 ; Dierkes et al. 2009 ; Qi et al. 2010 ; Sikes and Verecchia 2015 ; Mammen 2016 ; Meyering and Hintzen 2018 ; Scheffler and Kohl 2018 ) and eight publications deal with timing considerations (Panteghini 2006 ; Patek 2007 ; Mai 2006 ; Maßbaum and Sureth 2009 ; Dorfleitner et al. 2010 ; Hoffmann and Nippel 2012 ; Polito 2012 ; Bachmann et al. 2015 ). One analysis deals with the relation of inheritance tax and firm valuation (Diller and Löffler 2012 ). Other works examine the impact of collaterals (Li et al. 2016 ) or the German “Abgeltungssteuer” (Kiesewetter and Lachmund 2004 ) on a firm’s capital structure (Li et al. 2016 ).

Four of the 90 publications appeared in A + journals, ten in A-journals, 53 in B- and 22 in C-journals. Inherently to the topic, the great majority of papers employs multi-period models (76 models); 54 models are stochastic. Of all 90 models, 80 concern domestic settings. Surprisingly, no single paper models a fiscal authority as a strategic player.

4.13 Investment

ATR on the relation between investment and taxation comprises 68 publications and therefore is the second biggest topic in ATR according to our survey, accounting for 19.7% of all ATR-papers from 2000 to 2022. Investment-related ATR can be divided into the subcategories “investment valuation”, “choice of investment instrument or location”, “timing and uncertainty considerations”, “calculations of tax burdens and effective tax rates” and “risk-taking”.

The analyses by Babcock ( 2000 ), Hillebrandt ( 2001 ), Buhl et al. ( 2001 ), Schröer ( 2004 ), Dunbar and Sansing ( 2002 ), Fochmann and Rumpf ( 2010 ), Williams et al. ( 2010 ), Diedrich et al. ( 2011 ), Bachmann et al. ( 2016c ), and Albertus et al. ( 2022 ) deal with valuation of potential investments, i.e., firms or assets. Other publications examine the choice of capital accumulation and asset allocation (Shoven and Sialm 2004 ; Alvarez and Koskela 2007 ; Dietrich and Kiesewetter 2007 ; Fischer and Gallmeyer 2017 ), of location (Ortmann 2015 ) or of investment funds (Kühn et al. 2019 ; Kalies 2020 ) or evolve around shareholders (Guenther and Sansing 2006 ; Lindhe and Södersten 2016 ; Babkin et al. 2017 ; Gurr 2019 ).

Papers in the third subtopic analyze investment timing considerations, partially under conditions of irreversibility (Jou 2000 ; Böckem 2001 ; Hundsdoerfer 2001 ; Niemann 2004 ; Niemann and Sureth 2004 , 2005 , 2008 & 2013 ; Becker et al. 2006 ; Panteghini 2007 ; Knirsch and Schanz 2008; Knobloch 2008 ; Kudert and Klipstein 2010 ; Morellec and Schürhoff 2010 ; Schneider and Sureth 2010 ; Niemann 2011 ; Marekwica 2012 ; Kari and Laitila 2015 ; Hegemann et al. 2017 ; Weisbach 2017 ; Cai et al. 2018 ; Niemann and Sureth-Sloane 2019 ; Eberhardt and Thomsen 2019 ) or with regard to inheritance taxation (Diller et al. 2021 ).

Thirteen articles are dedicated to calculations about tax burdens and effective tax rates (Panteghini 2001 ; Devereux and Griffith 2003 ; Sureth and Langeleh 2007 ; Diller 2008b ; Sureth and Maiterth 2008 ; Müller and Sureth 2010 ; Blaufus and Mantei 2014 ; Fochmann and Jacob 2015 ; Mori and Ikeda 2015 ; Sander and Schmiel 2016 ; Melkonyan and Kahlenberg 2017 ; Hechtner 2017 ; Kudert and Höppner 2020 ). Moreover, six articles analyze risk-taking and related returns (Benninga and Sarig 2003 ; Fedele et al. 2011 ; Nippel and Podlech 2011 ; Pummerer and Steller 2013 ; Sims 2015 ; Bauer and Kourouxous 2017 ). Three other articles create strong relations to empirical research by developing new empirical instruments or measures (Robinson and Sansing 2008 ; Shackelford et al. 2011 ; Diller et al. 2017 ) or find theoretical underpinnings for empirical evidence (Bachmann et al. 2018 ).

Seven of the 68 articles in the topic appeared in A + journals, eight in A-journals, 35 in B-journals and 17 in C-journals. Similar to the finance-related models, most investment-related models span more than one period (52 models). Again, the majority of the models (37 models) are stochastic and refer to domestic settings (60 models). Only one model treats the fiscal authorities as a strategic player.

5 Development of analytical tax research over time

This section quantitatively illustrates how ATR evolved over time with regard to its outlets, i.e. rating and category, the publication language, the size of the author teams and the gender distribution within the teams. It is important to notice, that we have a full overview about the completed decades 2000 to 2009 and from 2010 to 2019, while the current decade is still ongoing. For the current decade, we can analyze the full years 2020 and 2021, and the year 2022 until November 5. Hence, any final assessments for the current decade would be premature; rather we describe trends—that may or may not persist throughout the upcoming years.

To give an overview on the external perception of ATR, we look at the number of papers by journal rating and year of publication, as summarized in Table 4 .

The number of yearly publications has been relatively constant between 2000 and 2022 with a mean of 15 publications per year. The proportion of publications in A + and A-journals stays at a similar level from the 2000s (6.3% and 14.5%), 2010s (5.0% and 14.3%) until the years 2020 to 2022 (4.0% and 16.0%), although the top-level journals in our review have increased their number of issues in the last ten years. It is noteworthy that the share of publications in B-rated journals decreased by ten percentage points from the 2000s to the 2010s, accompanied by a shift towards publications in C-rated journals in the 2010s. Footnote 12 However, this shift does not continue in the recent three years, where the B-publications outweigh the C-publications by far (64 vs. 8%). Consequently, it is not possible to identify a clear trend towards higher- or lower-ranked journals.

Next, we turn to the journal categories, in which the papers appeared. We distinguish between the disciplines accounting, business research (BWL), economics, finance and taxation and allocated each of the 51 journals in our study to one of them. Footnote 13 Strikingly, neither accounting nor tax journals account for the most publications in ATR, as Table 5 shows. Actually, business research journals have been the major outlet for ATR since at least 2000, publishing 44.9% of all articles—however, the trend does not persist in the most recent three years, in which economics and accounting journals overtook business research journals with regard to ATR publications. Economics journals have covered a quarter of all of ATR publications since 2000, and are even experiencing an upward trend recently. In contrast, finance journals account for only a small fraction of publications throughout the decades between 6.3 and 8.0%. This is surprising, because finance-related topics are very popular in ATR, as pointed out in Sect.  4 . Overall, tax journals do not seem to be the preferred outlet for ATR, which appear to focus on legal or empirical tax research, but experience an upward trend in the last three years.

Next, we summarize the language, in which the papers are written by publication decade in Table 6 . Of all 345 articles, 201 (58.3%) are written in English and 144 (41.7%) in German. We fully acknowledge that the large number of publications in German language is due to our special consideration of German BTR in this literature review, the related usage of the VHB-Jourqual3 as our basis for journal ratings and our manual search in mainly German journals, as explained in Sect.  2 . Despite this special focus on German publications, we observe a shift in the publication language from German to English throughout the years. While German was almost on par with English in ATR publications in the 2000s, now the vast majority of published papers is written in English, i.e. 76% in the last three years.

Of the 345 papers in our study, 119 are single-authored, 142 papers have two authors, and 76 have three authors. Only seven papers have four authors and one article was written by five authors, the maximum team size in our review. The average author team comprises two researchers. We observe a slight increase of the average number of authors per paper over time, with a minimum of 1.6 in 2000 and a maximum of 2.4 in 2018. Table 7 summarizes the observations.

Apart from shifts in language and the number of co-authors, we also detect changes in the gender distribution within the authors or author teams that contribute to ATR. Table 8 shows that throughout the last 23 years, 71.6% of all teams (including single authors) comprised male researchers only, while purely female single authors or author teams are rare (for 5.2% of all papers). Overall, 14.2% of all teams in ATR were gender-balanced. However, the proportion of purely male author teams in ATR has decreased from 74.2% in the 2000s to 56% in the last three years. At the same time, the overall number of women in author teams rose over the years, while the number of gender-balanced teams has stayed roughly constant. Since 2020, the average proportion of women in author teams has been 28.7%.

6 Citation analysis for analytical tax research at the publication level

This section describes the impact of ATR on the research community as measured by citations. To disentangle the impact of research findings and individual researchers, we distinguish between citations related to specific publications and citations related to individual researchers. To capture the impact as comprehensibly as possible, we rely on three different databases, Scopus, Google Scholar and Web of Science Core Collection (WoS). Using three databases allows us to depict different dimensions of impact and integrating an immediate validity check. First, we use Scopus to ensure internal consistency with our previous literature review. Second, we incorporate citations as captured by the web search engine Google Scholar to depict impact in a wider range of literature, such as preprints, monographs or dissertations and journals that are not covered by Scopus. Third, we use WoS as a genuine citation database. Footnote 14 To keep the analysis manageable and work within the scope of this literature review, we do not track when a paper was cited or by which other publications it was cited. Footnote 15

Of the 345 papers in our survey, 196 papers (56.8%) have citation number entries in Scopus, 313 papers (90.7%) in Google Scholar, but only 131 papers (38.0%) in WoS. For the remaining papers, the citation numbers are missing in the respective databases. Table 9 provides descriptive statistics for the distribution of citations per paper in each database if missing entries are treated as zero; Table 10 provides the same statistics if missing entries are excluded. For both approaches, the distribution of citations is heavily right-skewed. For the citation analyses in this section, we replace missing entries as zero, since we want to picture the measured impact of ATR from 2000 to 2022.

To introduce a benchmark, we begin by providing results on the number of citations overall and in the different research topics in Table 11 . All 345 publications generated 3,401 (Scopus), 13,132 (Google Scholar), 2,832 (WoS) citations in total (effective date: December 22, 2022). ATR on the choice of legal form for companies as well as pensions and provisions hardly create any citations, even in the broader database of Google Scholar, because these research areas are characterized by specifics of the German or Austrian tax law and therefore hardly relevant for an international audience. The three papers in the topic “role of tax advisors” are rarely cited, most probably due to their recent publication dates. Surprisingly, the two largest areas of finance- and investment-related ATR do not generate corresponding amounts of citations. A reason for this observation might be that many of these papers were published in Germany-based (business research) journals without a wider international range rather than in internationally visible finance journals that attract significantly more citations. Footnote 16 Often, these papers refer to German tax reforms and are interesting mainly for researchers affiliated with German institutions. In contrast, the area of tax avoidance, evasion and profit shifting accounts for more than 40% of all citations—even though publications in this area make up only 16.2% of all publications in our sample. Only 1.4% of all publications deal with private decisions, such as tax-minimizing marriage, but generate between 8.5% (Google Scholar) and 11.9% (WoS) of all citations. Footnote 17

As Table 12 depicts, publications in journals with A + and A-rating have a substantially higher mean number of citations (78.5 or 23.0 in Scopus; 265.8 or 71.5 in Google Scholar; 70.6 or 18.0 in WoS) than publications in B- or C-journals (3.3 or 0.5 in Scopus; 18.3 or 8.5 in Google Scholar; 2.6 or 0.1 in WoS). From 2000 to 2022, 200 papers appeared in B-journals, 67 in C-journals (Table 4 ). Almost two thirds of the B-publications (125) and more than three quarters of the C-publications (52) were not even cited once according to Scopus. As supplemental material 4 in the Appendix, we provide the results of a simple regression analysis with the citation numbers as the dependent variable and the language of the publication, journal ratings and categories, and female share of the author team, and publication year as the independent variables. The results show that a journal rating below an A + rating is significantly associated with lower citation numbers. Footnote 18 Furthermore, the year of publication and citations of an article are negatively related, as a more current article had less time to attract attention and hence generate citations. While the language has no significant relation to the citation numbers for an individual paper, many German or Germany-based journals have lower rankings and account for a substantial proportion of articles in our review, which especially considers German contributions to ATR. More than half of all publications in our review are covered by six Germany-based journals: Zeitschrift für Betriebswirtschaft (ZfB) /Journal of Business Economics (JBE) (B-rated, 14.2% of all papers), Betriebswirtschaftliche Forschung und Praxis (BFuP) (C-rated, 9%), Steuer und Wirtschaft (StuW) (B-rated, 7.8%), Zeitschrift für Betriebswirtschaftliche Forschung (ZfbF) /Schmalenbach Business Review (SBR) (B-rated, 7.8%), FinanzArchiv (FA) (B-rated, 6.4%) and Die Betriebswirtschaft (DBW) (C-rated, 6.4%). However, these six journals combined account for only 3.0% (Scopus), 14.7% (Google Scholar) and 2.2% (Web of Science) of all citations.

Table 13 shows key citation figures for the ten journals with the most publications in our literature review. The journals of German origin ZfB/JBE, BFuP, StuW, DBW, ZfbF/SBR, FA and also the Review of Managerial Science (RMS) have far lower shares in total citations than their corresponding shares in total ATR publications. The Journal of the American Taxation Association (JATA), the internationally well-known journal of the Tax Section of the American Accounting Association, is similarly “under-cited”, benchmarked against publication shares. Publications in JATA generated only up to 1.1% of all citations (Scopus), but represent 2.9% of all papers in ATR from 2000 to 2022. This finding suggests that the low citation numbers are not only due to the German language or origin of an article.

In contrast, economics journals such as International Tax and Public Finance (ITax), even though B-rated, and Journal of Public Economics (JPubE), A-rated, have much higher shares in total citations than in total publications and therefore can be called “over-cited”. Overall, the distributions of citations per paper are highly right-skewed with citation medians well below the respective means.

Confirming previous findings (e.g., Rapp et al. 2019 ), the English publications account for between 89.5% (Google Scholar) and 99.97% (WoS) of all citations, as captured in Table 14 .

Finally, Table 15 summarizes the citations of publications distinguished by journal category. While only 7% of all ATR publications since 2000 appeared in finance journals (Table 5 ), citations in these journals account for between 37.7% (Google Scholar) and 45.1% (WoS) of all citations. As shown in supplemental material 4 in the Appendix, a publication in a finance journal and citation numbers are positively associated. Similarly, only a quarter of publications appeared in economics journals, but generated around 40% of citations. However, the “over-citation” for economics journals is not statistically significant. In contrast, 45% of all papers appeared in business journals, but generated only between 3.1% (WoS) and 13.8% (Google Scholar) of all citations. Tax journals published 12.2% of all papers in our review, but only between 1.4% (WoS) and 3.5% (Google Scholar) of all citations are related to these papers. Part of the explanation is that a substantial amount of papers in our review was published in StuW (10.7%), which is not covered by Scopus and WoS and accounts for only 1.3% of Google Scholar citations. Hence, tax journals are neither the preferred outlet for ATR, nor do they have high impact as measured by citations. Consequently, articles in economics and finance journals tend to be over-cited, articles in business and tax journals are under-cited, relative to the number of papers in our study. Citation numbers in accounting journals are roughly proportional to the number of papers.

As a sensitivity analysis, we exclude the two most frequently cited papers (Desai and Dharmapala 2006 , concerning the topic of tax avoidance, tax evasion and profit shifting, and Desai et al. 2007 , concerning the topic of private decisions) from our sample, since they account for almost one third of all paper citations. In the following, we describe the effect of the exclusion of the articles on the previous analyses.

With regard to the citations by research topics, the citations in the area of tax avoidance decrease by around 12 percentage points. However, the topic remains the most frequently-cited one with up to 34.7% of all citations (WoS). Investment-related ATR follows in second place (increase of around 7 to 8 percentage points in all databases) and finance-related ATR (increase of around 6 to 7 percentage points in all databases). The topic of private decision loses almost all its citations.

Since the two deleted articles were published in the Journal of Financial Economics, an A + rated journal, the citation shares of the A + journal category decrease dramatically by around 20 percentage points for all databases. Accordingly, the citation shares for A-rated journals increase substantially up to 49.9% (Scopus) and up to 28.4% (Scopus) for B-journals. Hence, at least in Google Scholar, the category of B-journals become the most-cited one, also because the now most-cited paper (Devereux and Griffith 2003 ) was published in the B-rated journal International Tax and Public Finance .

Similarly, the citation shares of finance journals—although still overrepresented when benchmarked against their total share in ATR publications—decrease by up to 30 percentage points. After the exclusion of the outlier papers, economics journals become even more dominant with regard to citation shares, accounting for up to 65.2% of all citations (WoS, 42.1% previously).

7 Citation analysis for analytical tax research at the researcher level

7.1 overview of characteristics of authors and author teams.

In this section, we present some statistics regarding the authors of the 345 publications in our literature review, i.e. our author population. Contrary to our previous analyses, we do not rely on the Web of Science as a database at the author level, since different authors with identical names are sometimes treated as the same person, blurring their individual citations. For each author, we gather information on their affiliation, Footnote 19 i.e. the name and country of the institution, gender, respective number of (co-)authored publications in our review, number of co-authors in our author population and number of citations in Scopus and Google Scholar, and Scopus and Google Scholar h-indices. The h-index is an indicator of productivity and citation impact of the author. In the next subsection, we identify an author’s impact in the research community, approximated by individual citations.

As Table 16 shows, the 345 papers in our literature review are (co-)authored by 410 individuals from 26 countries. As explained in Sect.  2 and emphasized throughout the paper, authors from German institutions make up the majority of researchers due to high representation of German journals in our literature review. More than 47% of all researchers are affiliated with German universities and 55% of all authors in work for institutions of the German-speaking countries Germany, Austria and Switzerland (henceforth D-A-CH region Footnote 20 ). We include Swiss authors, because Switzerland is part of the VHB area. The inclusion of Switzerland also accounts for the physical proximity and same official language, which can drive research interests. As pointed out in the previous sections, many of the D-A-CH-authors tend to focus on specific problems in national tax law and in German language, which might be published in lower ranked journals, not generating high citations numbers (see Table 13 ). Nine authors of D-A-CH-institutions are associated with Swiss universities (see Table 16 ).

Among the 410 authors in our population, 355 (78%) are listed in the Scopus database; 49 of the remaining non-listed 55 authors are or were affiliated with German institutions. Footnote 21 Only 175 (42.6%) of all authors are registered at Google Scholar. Except for two authors, all authors with a Google Scholar entry are also listed in Scopus, but not the other way around. There are even several highly respected international researchers without Google Scholar information. Footnote 22 Apart from the smaller number of mostly German authors, the Scopus-listed subgroup is identical to the total author population. In contrast, the subgroup of Google Scholar-listed authors is much more centered around Anglo-American countries, i.e., Australia, Canada, New Zealand, UK, USA, with 74 of 175 authors (42.2%) and much less on the D-A-CH countries (48 of 175 authors, or 27.4%).

Within our literature review, the vast majority of authors (co-)authored solely one article within our sample (75.3%). As Table  17 summarizes, 54 authors wrote two, 20 wrote three, nine wrote four, and 18 wrote five or more articles within our sample. The average number of publications is 1.6; 17 articles constitute the maximum number of publications of one author. Of course, this distribution does not reflect absolute research productivity, since publications in disciplines apart from ATR are not part of our examination. However, the large gap between median (1 paper per author) and maximum number of publications (17 papers for one author) in ATR points to the heterogeneity of the research field, where some authors make ATR their main or only focus, whereas others address ATR issues only occasionally.

Table 18 displays the number of distinct co-authors for each of the 410 authors in our review. Footnote 23 Of all 410 authors, 57 (13.9%) do not have co-authors within our author population. Nevertheless, most of the authors in our review have one or two co-author(s) within the ATR community, with a mean of 1.7 and maximum of 14. Repeated co-authorships are counted only once. Overall, the previously described findings show that the ATR community is open to researchers who primarily work in other disciplines.

7.2 General insights on authors’ impact

We evaluate the impact of individual researchers by means of several metrics, such as absolute citations and h-indices, to minimize discretionary leeway. Table 19 gives an overview on the distribution of absolute citations at the authors’ level.

Citation numbers in Scopus and Google Scholar are highly correlated with a Pearson correlation coefficient of 0.96. Footnote 24 The distribution of citations is highly right-skewed, since many authors are rarely or even never cited and a few authors are cited very frequently. Of 355 authors included in Scopus, 24 authors (6.8%) have zero, 86 (24.2%) ten or less Scopus citations. In contrast, three authors in our population have more than 10,000 Scopus citations and 14 authors have more than 10,000 Google Scholar citations. Footnote 25 The top 10% authors of each database account for 68.6% of all Scopus citations (35 authors) and 55.8% of all Google Scholar citations (17 authors).

Due to the larger number of publications covered by Google Scholar, the citation counts are also much higher, especially at the lower end of the distribution. This notion is underlined by a look at the first quartile of citations—whereas the mean number of Google Scholar citations per author is 6.9 times (= 4,185.6/603.7) the mean number of Scopus citations, the multiple is 46.3 (= 533/11.5) for the first quartile and 12.8 for the median (= 1,493/117). Footnote 26

Despite the high correlation between Scopus and Google Scholar information, we include Google Scholar citations in our analysis for two reasons. First, they allow capturing the impact of less-cited authors, such as authors who publish in Germany-based or German-language journals (see Table 13 ), since Google Scholar depicts impact in a wider range of literature, such as preprints, monographs or dissertations and journals that are not covered by Scopus. Second, they give a broader view of an author’s oeuvre in lower-ranked journals and herewith total research productivity (see also Sect.  6 ).

Next, we use the h-index to measure the impact in the research community throughout the years 2000 to 2022, as displayed in Table 20 . The h-index is defined as “A scientist has index h if h of his or her N p papers have at least h citations each and the other (N p −h) papers have ≤ h citations each.” (Hirsch 2005 :16,569). Since the definition of the h-index limits the influence of outliers, i.e. very frequently cited papers at the author’s level, the distribution of the h-indices is less right-skewed than the distribution of citations. Nevertheless, the median h-indices of 5 (Scopus) and 18 (Google Scholar) also show that half of all authors are rarely cited. In our author population, 90% have an h-index of 17 or less (Scopus) or 39 or less (Google Scholar). We want to note carefully that h-indices seem to be specific to certain disciplines, e.g., h-indices of researchers in the Natural Sciences appear to be much higher (e.g., Hirsch 2005 ) and comparisons across different subdisciplines should be handled with care. The larger an academic discipline, the higher is the probability of a paper being cited—as noticed before, ATR constitutes a rather small discipline.

7.3 Gender and citations

As pointed out in Sect.  5 , a decreasing, yet remarkable gender imbalance in author teams still characterizes ATR (Table 8 ). At the individual level, 81.4% of Scopus-listed authors are male, only 18.6% are female. With regard to a possible gender citation gap, we find mixed results. Table 21 shows the Pearson correlation coefficients between a gender dummy (1 for females, 0 for males) and our citation measures. All correlation coefficients are negative, but very small. The correlation coefficients between the number of citations and the gender dummy are not statistically significant. However, the correlations between gender and the h-indices are statistically significant, but only at the 5% and 10% significance level, respectively. Although the mean, median and maximum citation numbers for male authors are much higher than for female authors for both citations, as shown in Table 22 , and h-indices, as shown in Table 23 , the differences are not statistically significant. In supplemental material 5 in the Appendix, we provide the results of an additional simple regression analysis with citation metrics as the dependent variable and gender, country of affiliation and number of published documents as independent variables. The analysis cannot confirm a systematic gender citation bias exists. However, we do not want to state overconfident results based on first and rather simple analyses and do not exclude that a gender citation bias exists in ATR. These first results can serve as a starting point for an analysis, which is fully dedicated to examining such possible biases.

7.4 Country of affiliation and citations

From our previous citation analyses at the publication level (see Table 13 ), we infer the country of the author’s home institution to play a role in the author’s individual impact. Again, we use dummy variables (1 for D-A-CH affiliation, 0 otherwise) in our separate analyses. Table 24 shows the correlation coefficients for the indicator variables D-A-CH and our citation metrics, Table 25 for the Anglo-American-dummy and our citation metrics. Indeed, authors from German-speaking institutions (in the D-A-CH region) are much less frequently cited than authors from Anglo-American institutions. Footnote 27

We find negative (positive) correlations between affiliation with an institution in the D-A-CH (Anglo-American) region and citations as well as h-indices. The correlation coefficients for Scopus metrics are highly significant, for Google Scholar metrics only at the 10% level. In supplemental material 5 in the Appendix, we show the results of a simple regression analysis with citation metrics as the dependent variable and gender, country of affiliation and number of published documents as independent variables. It supports the notion that an author’s affiliation with a D-A-CH-institution is negatively associated with individual citation measures. In contrast, the affiliation with an Anglo-American institution and individual citation measures are positively related. The distributions of citations and h-indices in the respective subsets of our dataset underline the observations, as shown in Tables 26 and 27 .

Overall, authors from the D-A-CH region have lower citation scores than authors from the Anglo-American countries. While it is not surprising that the international ATR community does not cite German publications due to language barriers and research questions that might be specific to German or Austrian tax (law), it is interesting that also researchers from the D-A-CH region rarely cite each other’s publications, as their overall low citation metrics reveal. The small size of this research community is probably part of the explanation. Along these lines, U.S.-based authors dominate the four lists of top 25 authors according to Scopus and Google Scholar citation numbers and h-indices, as displayed in supplemental materials 6 to 9. Table 28 displays all D-A-CH-based authors who appear in at least one of the four top 25 lists.

Only one of the D-A-CH-based authors in this list has his research focus on the core discipline of BTR. The other authors are from neighboring disciplines such as public economics and finance. This insight suggests that a strong institutional background in (national) taxation is not necessary for publishing highly cited ATR papers. Footnote 28

It would be interesting to analyze whether these results are specific to D-A-CH-based authors or could also arise in a different national context. Here, an adequate control group would be crucial. It should consist of a non-English-speaking country with a strong base of national journals in which ATR is published to allow the detections of rifts between nationally relevant and internationally accessible publications. Given that BTR as a distinct academic discipline exists only in Austria and in Germany, we, however, conjecture that such a control group does not exist in tax research.

7.5 Sensitivity analysis

To conduct a sensitivity analysis at the authors’ level, we exclude the two most frequently-cited papers (Desai and Dharmapala 2006 ; Desai et al. 2007 ) from our sample, similar to our sensitivity analysis at the paper level (Sect.  6 ). Deleting these two papers also leads to the omission of four authors who are all highly-cited males, affiliated with Anglo-American institutions. Compared to the original author population of 410, the citation numbers of the remaining 406 authors are less right-skewed, although still distinctly asymmetric. The differences of the citation metrics between male and female authors are slightly reduced, as the four deleted authors are male. The correlation coefficients of the “female” dummy variable with the citation metrics continues to be negative, but either insignificant (citation numbers) or only significant at the 10% level (h-indices).

The dominance of Anglo-American authors with respect to citation numbers and h-indices is only marginally affected by the omission of the four (Anglo-American) authors. The signs, sizes and p-values of the correlation coefficients of the “D-A-CH” or “Anglo-American” dummy variables and the citation metrics are very similar to the original author population of 410. As a consequence, all our results from the basic analysis are still valid.

8 Avenues for future research

8.1 areas of focus and open research questions in analytical accounting research.

Based on our analysis of research topics in Sect.  4 , we try to identify growing, shrinking or previously neglected research areas in ATR. Currently, the areas of ATR on the role of tax advisors and entrepreneurship, innovation and R&D exhibit growth trends. The topic on the role of tax advisors experiences a (small) revival after it had already been a topic of interest in the 1990s. From 2000 to 2022, three papers concern the role of tax advisors, apparently leaving a lot of room for further research. We think that the role of tax advisors is under-investigated, especially when benchmarked against its practical relevance. Small and medium-sized firms as well as multinationals use the help of either external or in-house tax advisors for tax declaration or tax planning, and for regular or infrequent transactions. Footnote 29 Tax advisory is a highly specialized service whose quality the recipient cannot observe easily or verify beforehand, so that principal-agent problems arise. Selecting the right advisor, choosing between external advisors and an internal tax department, or monitoring (internal or external) tax advisors poses decision problems that well-established models from principal-agent theory or game theory could address. Doing so could provide the missing theoretical basis for tax avoidance Footnote 30 or additional insights in the “under-sheltering puzzle”. Footnote 31

Moreover, we think that the interplay of taxes and entrepreneurship, innovation and R&D is of special importance due to the digitalization of the economy and the rise of business analytics for both scientific communities and practitioners. Often intangible assets, high risk and high growth potential and option-like values characterize digital business models whose tax consequences can deviate from traditional ones. Therefore, the combination of models for investment under uncertainty (such as real option theory, asset pricing or expected utility theory) with newly arising questions in innovation-related topics seems a promising avenue for future ATR. Findings can contribute to the theoretical basis for empirical studies in this field and inform the typical addressees of ATR, i.e., individual and corporate taxpayers and legislators.

Given the large number of applications for investment, financing, valuation and the well-established models in these areas, it is likely that these streams of the literature will continue to play a pivotal role in ATR. We think that the tax risk associated with particular investment and financing decisions or the riskiness of a tax shield in valuation procedures deserves special attention—especially in times of increased investment risk and volatile markets. Footnote 32 Similarly, the current discussion and implementation of taxes on energy-related windfall profits (see European Council 2022c ) should trigger a reassessment of legislative fiscal risks for investors.

In contrast, the tax neutrality and tax burden literature both seem to have peaked in the 1990s/2000s. Footnote 33 The growing importance of cross-border rather than domestic models probably led to the insight that tax neutrality is unattainable in an international context with its variety of different tax rates and tax bases. Although, analyses of the effects of international tax allocation mechanisms, such as transfer prices or formula apportionment, constantly contribute to ATR, we are skeptical with respect to model-based analyses on the current OECD (Organization for Economic Co-operation and Development) proposals, Pillar One and Pillar Two, Footnote 34 due to their complexity and unresolved legal issues. Footnote 35

Several tax topics are widely neglected in the papers in our review. Most striking is the near absence of analyses of non-profit taxes. Footnote 36 Despite the significant contribution of the Value-Added Tax (VAT) to tax revenue in most EU countries and proven interest from empirical research (e.g. Jacob et al. 2019 ), only one paper in our review also accounts for VAT-effects (Kroh and Weber 2016 ). The reasons for this neglect could be either due to the presumed neutrality of VAT or our exclusion of tax incidence papers that we attribute to public economics. Furthermore, none of the papers in our review addresses the effects of procedural law on economic decisions—although ATR could help firms to make informed decisions in administrative processes and legislators to understand firms’ behavior. In addition, ATR on transfer prices, tax avoidance or tax evasion currently neglects tariffs—even though they are crucial in cross-border trade and can either alleviate or aggravate tax incentives. Footnote 37 Integrating tariffs into analyses could provide additional explanations of tax avoidance behavior of multinationals.

Intensive discussions on ESG reporting have arisen recently. Footnote 38 If disclosure requirements extend to firms’ tax strategy (e.g., characterized as transparent, co-operative, aggressive, etc.), investors’ or other stakeholders’ reactions might induce firms to adjust either their tax strategy or their economic decisions, causing real economic effects. Since the rationale is not always straightforward, a formal model can provide a sound theoretical basis for future empirical studies and explain the possible effects. At a national level, research questions can arise from national tax reform proposals or multi-national initiatives and serve as triggers for ATR. Here, only formal models have the potential to explain the consequences for taxpayers as well as fiscal authorities and provide timely information for legislators.

8.2 Publication strategy

Given the low citation numbers and the low ranking of national journals, there seem to be few incentives to focus on analyses that benefit mainly practitioners, unless the researcher’s institution or professional environment considers such a focus a major responsibility of ATR. Authors who set that focus should not take the blame for an allegedly low research productivity, since ATR is a small academic discipline with high national relevance, but low international visibility. However, institutional incentives for researchers or reputational concerns can induce them to concentrate on more publishable topics. Finance journals typically do not attach importance to special institutional tax knowledge. Hence, ATR researchers should capitalize on such a knowledge by teasing out generalizable aspects of country-specific tax legislation and target accounting and public economics journals, which appreciate this approach. Paradoxically, publications in plain tax journals do not appear a particularly promising publication strategy for tax researchers.

9 Summary and conclusion

This literature review extends earlier reviews of tax research and focuses only on the area of analytical tax research (ATR) without a restriction to specific research topics, but with a special consideration of German and Austrian business tax research (BTR). We provide an overview of the development of ATR from 2000 to 2022 and evaluate its impact on the scientific community by means of citation analyses. Our literature review covers 345 publications, written by 410 authors in both German and English language. Most of the articles examine finance- and investment-related research questions. However, also novel topics, such as examinations of the impact of taxation on entrepreneurship, innovation and R&D, attract increasing interest; others, such as the topic of tax avoidance, tax evasion and profit shifting, remain high in interest. Within the 23 years of our review period, English has overtaken German as main publication language, and gender distribution in author teams has become somewhat more balanced, while the size of teams has remained similar throughout the years. Interestingly, tax journals are not the main outlet for ATR. Rather, our analysis shows that ATR united authors from different disciplines, such as accounting, business research, economics and finance in different outlets.

Both a publication in higher-ranked journals and English as publication language are associated with higher impact, i.e. higher number of citations. Mostly international researchers from various non-tax disciplines fulfill these prerequisites. Consequently, international mobility of young tax researchers to Anglo-American institutions constitutes an important career opportunity, very similar to the discipline of economics. In contrast, domestic researchers, who target journals of national relevance, contribute to the improvement of real-world decision-making of firms, individual taxpayers and tax authorities, but are hardly visible for the international research community. Our review delivers insights into ATR that allow junior researchers to assess the discipline and make informed decisions about their future career paths. We think that an awareness for emerging topics and potential pitfalls, but also opportunities can guide them in their evolvement as analytical tax researchers and motivate them to make use of their unique combination of institutional and methodical knowledge.

Data availability

The authors fully disclose the data set of publications in the review.

Code availability

Code will be made available on reasonable request.

Betriebswirtschaftliche Steuerlehre in German.

E.g., Mellwig ( 1985 ), Schneider ( 1962 , 1969 , 1977 , 1980 , 1992 ), Schreiber ( 2021 ), Siegel ( 1982 ), Swoboda ( 1994 ), Wagner and Dirrigl ( 1980 ).

Part of the explanation might be that BTR exists only in Austria and Germany as an academic discipline that is institutionally separate from Economics or Law. Tax Accounting, as common in the U.S., covers only part of the research questions of BTR.

We have to take this finding with caution, since 410 different researchers (co-)author the 345 papers in our study, but only 355 are traceable in Scopus and only 175 in Google Scholar.

Verband der Hochschullehrerinnen und Hochschullehrer für Betriebswirtschaft in German.

The journals without a ranking were mentioned by at least ten, but less than 25 researchers. A formal journal ranking required at least 25 respondents.

According to our research, EBSCO, Web of Science, Science Direct, Emerald, Springer, e.g., in Block et al. ( 2020 ), or EBSCOhost, JSTOR, ScienceDirect, SCOPUS, Wiley, e.g. in Behrendt and Eulerich (2019), have a lower coverage of relevant journals (supplemental material 1) than Scopus. In any case, we would have had to do additional hand-collection and manual filtering of articles, since all of the databases cover English articles foremost.

See, for example, Betting and Wagner ( 2013 ) and Ertel ( 2017 ) for hand-collected co-citation analyses, Behrend and Eulerich ( 2019 ), Block et al. ( 2020 ) for database-oriented studies. Also if we had used another database, we would have had to do additional hand-collection of articles (see footnote 7).

It is typically not necessary to indicate a paper’s (main) research method when submitting it to a journal.

This holds, for example, for the two most frequently cited papers in our study, Desai and Dharmapala ( 2006 ) and Desai et al. ( 2007 ).

Whenever the number of publications in rated journals does not equal the total number of articles in a research category, the remaining articles appeared in journals that do not have a formal VBH-Jourqual3 ranking (n.r.) due to the low number of survey respondents.

The reduction of papers in Steuer und Wirtschaft (StuW) and the simultaneous increase of papers in Betriebswirtschaftliche Forschung und Praxis (BFuP) from the 2000s to the 2010s explain a large part of this development.

We provide a list of categories and their related journals in the Appendix (supplemental material 3). We think that our allocation is indisputable in most cases. We consider International Tax and Public Finance as an economics journal instead of a tax journal to account for its main research focus. We count Zeitschrift für Betriebswirtschaft (ZfB) and Journal of Business Economics (JBE) as a single journal, because ZfB was succeeded by JBE in 2013. Similarly, we merge the twin journals Zeitschrift für betriebswirtschaftliche Forschung (ZfbF) and Schmalenbach Business Review (SBR) that were published simultaneously from 2000 to 2020.

The German literature database WISO that could be helpful for Germany-based jounals does not provide citation numbers.

Such an analysis can sometimes be found in citation studies of a single or rather few journals. See, for example, Mensah et al. ( 2004 ) for Management Accounting Research, Chan et al. ( 2009 ) for a dissertation citation analysis, Betting and Wagner ( 2013 ) for Steuer und Wirtschaft, Ertel ( 2017 ), 168 ff. for a co-citation analysis of German BTR.

See supplemental material 4.

Two publications generate by far the highest citation numbers. Desai and Dharmapala ( 2006 ) in the area of ATR on tax avoidance accounts for 750 citations in Scopus, 2,775 in Google Scholar, 665 in WoS and Desai et al. ( 2007 ) in the area of ATR on private decisions for 345 citations in Scopus, 1,063 in Google Scholar, 322 in WoS. In a sensitivity analysis, we explain which differences arise if those two outlier papers are excluded.

An untabulated test reveals similar results when benchmarking the citations of articles in journals with B- and C-rating and without a rating against those in A-rated journals. However, the results are less consistent across the different citation databases.

We use the jurisdiction of the author’s institution, because the author’s institution determines the working environment. When an author was affiliated with institutions in different countries in our observation period, we take the most recent one. If an author later moved to another institution, we still take the institution mentioned in the most recent paper in our review rather than today’s institution.

This abbreviation is derived from the license plates in the respective countries.

Most of these German researchers are former PhD students, who published an article during their affiliation to a university, but left academia after graduation. This finding illustrates a typical career pattern at German universities.

We conjecture that authors’ data protection considerations might be a reason.

In an untabulated test, we find that the number of co-authors is not associated with any citation metric.

The calculation of the Pearson correlation coefficient is based on the 173 joint observations in Scopus and Google Scholar.

We provide a list of the 25 most impactful authors (about 6% of the total population), measured by absolute citations and h-indices, as supplemental materials 6, 7, 8 and 9 in the Appendix.

Authors without Scopus or Google Scholar record are not included when computing the means or the percentiles.

The results for Germany alone instead of D-A-CH and USA alone instead of Anglo-American countries are very similar and therefore not displayed separately.

However, Mills ( 2019 ) points to the importance of institutional knowledge for pursuing relevant tax research.

See Feller and Schanz ( 2017 ) for an empirical study on internal tax departments.

See Ewert and Niemann ( 2014 ) and Jacob et al. ( 2021 ) for theoretical explanations.

For empirical research on the “under-sheltering puzzle” see, for example, Desai and Dharmapala ( 2006 ), Gallemore et al. ( 2014 ), McGuire et al. ( 2014 ).

E.g., recent news on the volatility of financial markets (Tagesschau, June 9, 2022: “Finanzmärkte unter Zinsdruck”, https://www.tagesschau.de/wirtschaft/finanzen/marktberichte/geldanlage-vermoegen-zinsen-aktien-anleihen-ezb-lagarde-leitzins-oel-euro-dollar-101.html [accessed on March 23, 2023].

See, e.g., the dissertations by Sureth ( 1999 ) and Niemann ( 2001 ) and the references cited there. See Wagner ( 2017 ) for a recent assessment of tax neutrality.

See OECD ( 2020 , 2021a , 2021b , 2022a , 2022b ).

As an example, see the Public Consultation Document of the OECD ( 2022c ).

For exceptions see: Hiller ( 2001 ), Jansen and Gröning ( 2003 ), Nordblom and Ohlsson ( 2006 ), Jansen ( 2007 ), Kundisch et al. ( 2007 ), Dorfleitner et al. ( 2010 ), Brähler and Hofmann (2011), Diller and Kittl ( 2016 ), Franke et al. ( 2016 ), Diller et al. ( 2019 ), Diller et al. ( 2021 ) on inheritance tax planning and Delipalla ( 2009 ) on effects of tobacco taxes.

For an empirical study on this topic, see Kohlhase and Wielhouwer ( 2023 ).

See European Council ( 2022a , 2022b ) for the future corporate sustainability reporting directive (CSRD). For the relation of Corporate Social Responsibility and taxes see, for example, Wagner ( 2018 , 2019 ) and the references cited there.

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Factors influencing taxpayers to engage in tax evasion: evidence from Woldia City administration micro, small, and large enterprise taxpayers

• Erstu Tarko Kassa   ORCID: orcid.org/0000-0002-8199-4910 1  

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The main purpose of this paper is to investigate factors that influence taxpayers to engage in tax evasion. The researcher used descriptive and explanatory research design and followed a quantitative research approach. To undertake this study, primary and secondary data has been utilized. From the target population of 4979, by using a stratified and simple random sampling technique, 370 respondents were selected. To verify the data quality, the exploratory factor analysis (EFA) was conducted for each variable measurements. After factor analysis has been done, the data were analyzed by using Pearson correlation and multiple regression analysis. The finding of the study revealed that the relationship between the study independent variables with the dependent variable was positive and statistically significant. The regression analysis also indicates that tax fairness, tax knowledge, and moral obligation significantly influence taxpayers to engage in tax evasion, and the remaining moral obligation and subjective norms were not statistically significant to influence taxpayers to engage in tax evasion.

Introduction

In developed and developing countries, business owners, government workers, service providers, and other organizations are forced by the government to pay a tax for a long period in human being history, and no one can escape from the tax of the country. To support this, there is an interesting statement mentioned by Benjamin Franklin “nothing is certain except death and taxes”. This statement confirmed that every citizen should be subjected to the law of tax, and they are obliged to pay the tax from their income. To build large dams, to construct transportation infrastructures, and to provide quality social services for the community, collecting a tax from citizens plays a significant role for the governments (Saxunova and Szarkova, 2018 ).

Tax is the benchmark and turning point of the country’s overall development and changing the livelihoods and enhancing per capital income of the individuals. The gross domestic product of the developed countries and average revenue ratio were 35% in the year 2005, whereas in developing countries the share was 15% and in third world countries also not more than 12% (Mughal, 2012 ).

In the developing world, countries have no system to collect a sufficient amount of tax from their taxpayers. The expected amount of revenue cannot be enhanced due to different reasons. Among the reasons tax operation of the system may not be smooth, tax evasion and lack of awareness creation for the taxpayers are common in the developing world, and citizens are not committed to paying the expected amount of tax for their countries (Fagbemi et al., 2010 ). In today’s world, this remains very much the same as persons now pay taxes to their governments. As the world has evolved, tax compliance has taken a back seat with tax avoidance and tax evasion being at the forefront of the taxpayer’s main objective. Tax avoidance is the use of legal means to reduce one’s tax liability while tax evasion is the use of illegal means to reduce that tax liability (Alleyne & Harris, 2017 ). Tax evasion is a danger to the community; the countries and international organizations have been making an effort to fight undesirable phenomena related to taxation, the tax evasion, or tax fraud (Saxunova and Szarkova, 2018 ).

Tax evasion may brings a devastating loss for the country's GDP at the micro level, and it became a debatable and a special concern for tax collector authorities (Aumeerun et al., 2016 ). The participants in tax evasion activity critized by different individuals and groups by considering the loss that brings to the country economy (Alleyne & Harris, 2017 ).

According to Dalu et al., ( 2012 ) state that in the Zimbabwe tax system there are identical devils tax evasion and tax avoidance that create a problem for the government to collect a tax from taxpayers. Like Zimbabwe, many nations have faced challenges to cover the annual budget and to construct different infrastructures due to the budget deficit created by tax evasion (Alleyne & Harris, 2017 ; Turner, 2010 ).

Scholars especially economists agreed that tax evasion may be considered a technical problem that exists in the tax collection system, whereas psychologists believed that tax evasion is a social problem for the countries (Terzić, 2017 ).

Tax evasion practices are more worsen in developing countries than when we compare against the developed countries. Tax evasion is like a pandemic for the countries because they are unable to control it. Therefore, governments were negatively affected by tax evasion to improve the life standard of its citizens and to allocate a budget for public expenditure, and it became a disease for the country’s economy and estimated to cost 20% of income tax revenue (Ameyaw et al., 2015 ; degl’Innocenti & Rablen, 2019 ; Palil et al., 2016 ).

Several factors may lead taxpayers to engage in tax evasion. Among the factors, tax knowledge, tax morale, tax system, tax fairness, compliance cost, attitudes toward the behavior, subjective norms, perceived behavioral control, and moral obligation are major factors (Alleyne & Harris, 2017 ; Rantelangi & Majid, 2018 ). Other factors have also a significant effect on taxpayers to engage in tax evasion practice such as capital intensity, leverage, fiscal loss, compensation, profitability, contextual tax awareness, interest rate, inflation, average tax rate, gender, and ethical tax awareness on tax evasion (Annan et al., 2014 ; AlAdham et al., 2016 ; Putra et al., 2018 ).

According to Woldia City Administration Revenue Office annual report ( 2019/2020 ) from July 1, 2019, to June 30, 2020, 232,757,512 birr was planned to be collected from taxpayers; however, the office was able to collect only 198,537,785.25 birr; however, the remaining 34,219,726.75 birr have not been collected by the office from the taxpayers. The reason behind this was there might be some factors that lead to taxpayers not to pay the annual tax from their annual income. Based on the review of the previous studies and by diagnosing the tax collection system in the city administration, the researcher identified the gaps. The first gap that motivated the researcher to undertake this study is that the prior studies did not address the factors that influence the tax collection system of Ethiopia, specifically, there is no research result that was able to show which factors influence taxpayers to engage in tax evasion in the Woldia city administration. The other gap is the previous study focused on the demographic, economic, social, and other factors. However, this study mainly focused on the behavioral and other factors that lead taxpayers to engage in tax evasion.

To indicate the benefit of this study, the study specifies on which critical factors the authority will focus on to enhance annual revenue and to aware tax payers of the devastating impact of tax evasion. Moreover, the paper may bring new insights on tax evasion influential non-economic factors that the researchers may give more emphasis on the upcoming researches. This paper will also contribute innovative ways to know the reasons why tax payers engage in tax evasion and inform the authority at which factors they will struggle to reduce their influence and to enhance revenue. The study can be an evidence that the tax authority should launch innovative techniques to control tax evasion practices. Moreover, applying fair tax system in the collectors’ side, the enterprises become innovative and will expand their business.

To sum up, in this study, the researcher examined which factor (tax knowledge, tax fairness, subjective norms, moral obligation, and attitude towards the behavior) influences taxpayers to engage in tax evasion activities. Based on the above discussion, the objective of the study is to examine factors that influence taxpayers to engage in tax evasion in Woldia city administration.

Literature review

Tax and tax evasion.

Tax is charged by the government to the business, governmental organization, and individual without any return forwarded from the authority. Tax can be categorized as direct tax which is collected from the profit of the companies and the incomes of individuals, and the other category of tax is an indirect tax collected from consumers’ payment (James and Nobes, 1999 ).

Tax evasion is a word explaining individuals, groups, and companies rejecting the expected amount of payment for the authority. It is a criminal offense on the view of law (Nangih & Dick, 2018 ). The overall procedure of tax collection faced different challenges especially tax evasion the most important one. Tax evasion is done intentionally by taxpayers by avoiding and hiding different documents that become evidence for the tax collection authorities. It is simply an illegal act to pay the true amount of the tax (Aumeerun et al., 2016 ; Storm, 2013 ). Tax evasion is a crime that is able to distort the overall economic, political, and social system of the country. The economic aspect of tax evasion affects fair distribution of wealth for the citizens. The social aspect also creates different social groups motivated by tax evasion discouraged by these individuals due to unfair competition (AlAdham et al., 2016 ). Tax evasion is a mal-activity that reduces the amount of tax paid by the payers. Perhaps the taxpayers who engaged in evasion activity may be supported by the legislative of the country (Kim, 2008 ; Putra et al., 2018 ; Allingham & Sandmo, 1972 ). According to Al Baaj et al. ( 2018 ) argument, there are two types of tax evasions. The first one is the legal evasion or tax avoidance which is supported by the legislation of the countries and the right is given for the taxpayer, but it is not constitutional (Gallemore & Labro, 2015 ; Zucman, 2014 ).

Theoretical reviews on factors affecting tax evasion

The illegal activity done by taxpayers has many determinants that lead them to engage in tax evasion. Among the factors that trigger taxpayers who participate in this activity are the economic factors. Under the economic factors, business sanctions, business stagnation, and the amount of tax burden are considered as influential factors. On the other hand, legal factors, social factors, demographic factors, mental factors, and moral factors are the most important factors (Saxunova and Szarkova, 2018 ). Many factors determine the taxpayers’ interest to engage in tax evasion. Among the factors, the following are considered under this review.

The factors that able to influence taxpayers to engage in tax evasion are moral obligation . It is a principle and a duty of taxpayers by paying a reasonable amount of tax for the tax authorities without the enforcement of others. It is an intrinsic motivation of payers paying the tax (Sadjiarto et al., 2020 ). When taxpayers have low tax morals, they will become negligent to pay their allotted tax, and they will engage in tax evasion (Alm & Torgler, 2006 ; Frey & Oberholzer-Gee, 1997 ; Torgler et al., 2008 ). According to Feld and Frey ( 2007 ), when tax officials are responsible and provide respect in their duties toward taxpayers, tax morale or the honesty of taxpayers will increase. Tax morals may be affected by a demographic and another factor like income level, marital status, and religion (Rantelangi & Majid, 2018 ). It is the determinant behavior of tax payers whether they participate or not. Tax morals can affect positively taxpayers to engage in tax evasion (Nangih & Dick, 2018 ; Terzić, 2017 ). It is known that taxes levied by the concerned authority are ethical. As cited by Ozili ( 2020 ), McGee ( 2006 ) argues that there are three basic views on the ethics and moral of tax evasion. The first view is tax evasion is unethical and should not be practice by any payer, the second argument deals that the state is illegal and has no moral authority to take anything from anyone, and the last argument is tax evasion can be ethical under some conditions and unethical under other situations; therefore, the decision to evade tax is an ethical dilemma which considers several factors (Robert, 2012 ). Therefore, the discussion leads to the following hypothesis:

H 1 . Moral obligation has a negative influence on taxpayers to engage in tax evasion.

The other factor that influences taxpayers to engage in tax evasion is tax fairness . Tax fairness is a non-economic factor that determines the tax collection of the country (Alkhatib et al., 2019 ). It is known that the tax collection procedures, principles, and implementation must be fair. Unethical behavior may happen due to the unfairness of the tax collection process. The fairness of tax may influence payers positively to pay the tax. When the tax rate is not reasonable and fair, the payers will regret to engage in the tax evasion practices and they will inform authorities their annual income without denying the exact amount. Considering the ability of paying or acceptable tax rates helps to maintain the fairness of the taxation system (Rantelangi & Majid, 2018 ). The governments choose to levy in what amounts and on whom will pay a high tax rate (Thu, 2017 ). The tax rate is a factor that induces taxpayers to pay less amount from their income. The rate of tax should be fair and reasonable for the payers (Ozili, 2020 ). As cited by Gandhi et al. ( 1995 ) the Allingham and Sandmo’s model, Allingham and Sandmo ( 1972 ) shows that the tax rate on payment can be positive, zero, or negative, which implies that an increase in the tax rate may cause the tax payment to increase, remain the same, or decrease. The theoretical literature could not evidence the claim that an increase in the tax rate will lead to an increase in tax evasion (Gandhi et al., 1995 ). The fairness of tax is controversial and argumentative because there may not happen a similar amount of tax for all payers (Abera, 2019 ). Thus, based on this ground the study hypothesis would be:

H 2 . Tax fairness has a positive influence on taxpayers to engage in tax evasion.

Tax knowledge is vital for taxpayers to know the cause and effect brought to them to engage in tax evasion. If tax payers are well informed about tax evasion, their participation in tax evasion would be infrequent; the reverse is true for a taxpayer who is not well informed. Tax-related information should give more emphasis to enhance the knowledge of taxpayers and experts of the authority (Poudel, 2017 ). Tax knowledge is a means to enhance the revenue of the country from the side of tax payers (Sadjiarto et al., 2020 ). If the authorities cascade different training for taxpayers about tax evasion and other tax-related issues, taxpayers become reluctant to engage in tax evasion (Rantelangi & Majid, 2018 ). Tax knowledge is a determinant factor for the taxpayer to engage and retain from the tax evasion activities (Abera, 2019 ). When taxpayers are undertaking their routine tasks without tax knowledge, they may involve in certain risks that expose them to engage in tax evasion (Thu, 2017 ). Thus, the discussion leads to the following hypothesis:

H 3 . Tax knowledge has a negative influence on taxpayers engaged in tax evasion.

The stakeholders, government experts, families, individuals, groups, and peers influence taxpayers whether they engaged in tax evasion or not (Alleyne & Harris, 2017 ). As cited by Alkhatib et al. ( 2019 ), the influence of peer groups on tax taxpayers is high, thus affecting the taxpayers’ preferences, personal values, and behaviors to engage in tax evasion (Puspitasari & Meiranto, 2014 ). The stakeholders around the taxpayers might be motivators to push taxpayers in the criminal act of tax evasion. This act called subjective norms meant that the payers are influenced by peers and other stakeholders. When the tax payer is reluctant to pay a tax for the authority, his/her friends are more likely to hide tax. As cited by Abera ( 2019 ), there is a strong relationship between social norms and subjective norms with tax evasion and affects the small business taxpayers (Nabaweesi, 2009 ). The above discussion can support the following hypothesis of the study:

H 4 . Subjective norms have a positive influence on taxpayers to engage in tax evasion.

The other factor that influences taxpayers to engage in tax evasion is an attitude towards the behavior of taxpayers. Attitude is a means of evaluating the activities whether they are positive or negative of any object. Many studies have been done by different scholars by defining and identifying the relationship between the attitudes of taxpayers with tax evasion (Alleyne & Harris, 2017 ). If the attitude of taxpayers towards taxation is negative, they will be reluctant to pay their obligation to the authority; the reverse is true when taxpayers have positive attitudes towards taxation (Abera, 2019 ). Based on the above discussion, the hypothesis of the study would be as follows:

H 5 . Tax payers’ attitude towards the behavior has a positive influence on taxpayers to engage in tax evasion.

Conceptual framework of the study

The researcher identified the variables and presented the relationship between independent and dependent variables as follows (Fig. 1 ):

Conceptual framework of the study. Adapted from Alleyne and Harris ( 2017 ) and Rantelangi and Majid ( 2018 )

Materials and methods

The researcher applied descriptive and explanatory research design to carry out this study. The explanatory research design enables the researcher to show the cause and effect relationship between independent and dependent variables, and the descriptive research also helps to describe the event as it is. The quantitative approach has been followed by the researcher to analyze and interpret the numerical data collected from the respondents. The researcher used primary and secondary data. The primary data was collected from the respondents by using questionnaires, and the secondary data was also collected from the reports, websites, and other sources.

The target population of the study was 4979 taxpayers (micro, small, and large enterprises). From the total taxpayers, 377 are categorized under level “A,” 207 are under level “B,” and the remaining 4395 taxpayers are categorized under level “C”. From the target population by using a stratified sampling technique, the respondents have been selected. The target population has been divided by the level of taxpayers; after dividing the population by level, the researcher applied a simple random sampling technique to select respondents. To identify the target participants or sample size in this study, the researcher used Yamane’s ( 1967 ) formula. Hence, the formula is described as follows:

where N = target population, n = sample size, e = error term

Based on the sample size, the respondents have participated proportionally as follows from each level. The total population was divided by strata based on the level categorized by the authorities. By using a simple random sampling technique, 28 respondents were from level “A,” 15 respondents from level “B,” and 327 respondents from level “C” have participated.

Regarding data collection instruments , the data was collected by self-administered standardized questionnaires. The variable of the study a moral obligation was measured by 4 items; after conducting factor analysis, the fourth variable or questionnaire has been removed and after that correlation and regression analysis has been done for 3 items; the value of Cronbach’s alpha was .711; the other factor attitude towards the behavior was measured by 4 items with a value of .804 Cronbach’s alpha; the third variable subjective norms was also measured by 4 items; the value of Cronbach’s Alpha was .887, and tax evasion was measured by 5 items; the Cronbach’s alpha value was .868. For the above-listed variables, the questionnaires were adapted from Alleyne and Harris ( 2017 ), and the remaining variable tax fairness was measured by 7 items, the Cronbach’s alpha value was .905, the items were adapted from Benk et al. ( 2012 ), and the last variable tax knowledge was measured by 5 items. However, after conducting factor analysis, the fifth item has been removed due to low value of the variable. After the removal of the fifth item, the Cronbach’s alpha value for the remaining items was .800, the items were adapted from Poudel ( 2017 ). For all variables, the researcher has used a five-point Likert scale from strongly agree to strongly disagree.

To analyze the collected data, the researcher used descriptive statistics analysis, factor analysis, correlation analysis, and multiple regression analysis to know the result of variables by using SPSS Version 22. Moreover, the model of the study is described as follows:

where Y = tax evasion, X 1 = moral obligation, X 2 = tax fairness, X 3 = tax knowledge, X 4 = subjective norms, and X 5 = attitude towards the behavior, β = beta coefficient, B 0 = constant, e = other factors not included in the study (0.05 random error).

Results and discussion

Level of respondents.

As indicated in Table 1 from the total respondents, 88.4% are categorized under level “C,” 4.1% are leveled under “B,” and the remaining 7.6% of respondents have been categorized under level “A”.

Factor analysis of the study variables

To undertake exploratory factor analysis, the data should fulfill the following assumptions. The first assumption is the variables should be ratio, interval, and ordinal; the second one is within the variables there should be linear associations; the third assumption is a simple size should range from 100 to 500; and the last assumption is the data without outliers. Thus, this study data have been checked by the researcher whether the data meets the assumption or not. After checking the assumptions, factor analysis was conducted as follows.

KMO and Bartlett’s test

Conducting KMO and Bartlett’s test is a precondition to conduct the factor analysis of the study measuring variables. KMO measures the adequacy of the sample of the study. In the result reported in Table 2 , the value was 0.883 and enough for the factor analysis. Related with Bartlett test as shown in Table 2 , the value is 5727.623 ( p < 0.001), which reveals the adequacy of data using factor analysis.

As shown in Table 3 , factors were extracted from study data; there was a linear relationship between variables. From the table, we can understand that 6 variables have more than one eigenvalue. The first factor scored the value 31.782 of the variance, the second value is 11.739 of the variance, the third factor scored 8.246 of the variance, the fourth factor accounts for 6.725 of the variance, the fifth factor also accounts for 5.233, and the last factor scored 4.123 of the variance. All six factors were explained cumulatively by 67.85% of the variance.

As shown in the Fig. 2 , the scree plot starts to turn down slowly at the low eigenvalue which is less than 1. The six factors eigenvalue is greater than one.

Scree plot. Source: own survey (2020)

The pattern matrix is shown in Table 4 which is able to show the loading of each variable and the relationship of variables in the study. The highest value among the factors measured the variable considerably. The cutoff point of loading was set at .35 and above. Based on the loading cutoff point except two factors, all are significant and analyzed under this study. From the six variables (five independent and one dependent) incorporated under this study, the identified factors show that how significantly enough to measure the situation. These factors have scored greater than 1 eigenvalue and able to explain 67.85% of the variance. In general, the detail variables and their factor are described as follows:

The first component tax fairness has 7 factors; the eigenvalue is 8.58 and able to explain 31.78 of the total variance. In this component, the highest contributed factor was item TF3 (weight = .925), TF5 (weight = .865), TF1 (weight = .859), TF2 (weight = .778), TF4 (.668), TF6 (weight = .614), and TF7 (weight = .568). The second component was tax evasion and has 5 items; the eigenvalue is 3.17 and explaining 11.73 of the variance. The factor weight of the items, TE4 (factor weight = .860), TE5 (factor weight = .810), TE3 (factor weight = .730), TE2 (factor weight = .650), and the last one is TE1 (factor weight = .606). The third component was subjective norms; it has 4 factors the weight of each factor described as follows. The first item SNS1 weight = .898, SNS2 factor weight = .887, SNS4 factor weight = .846, and SNS3 factor weight = .820. Moreover, the eigenvalue of this component is 2.226 and explained 8.246 of the variance of the study. The fourth component is an attitude towards the behavior. This variable has four factors that have 1.816 eigenvalue and explained 6.725 of the total variance. Among the items, ATB2 factor weight = .863, ATB1 factor weight = .792, ATB3 factor weight = .791 and the last factor is ATB4 factor weight = .500. The fifth component of the study is tax knowledge; at the very beginning of this variable, the researcher adapted five items. However, one item (TK5) was not significant and removed from this analysis. In this component, the highest value was scored by TK3 (factor weight = .866), the second highest TK2 (factor weight = .801), the third highest factor weight (weight = .700), and the last factor is TK4 (weight = .690). The eigenvalue of this component was 1.413 and explained 5.233% of the variance. The last component is a moral obligation; like tax knowledge, the researcher adapted for this variable 4 items, though, one item (MO4) was not significant and removed from the items list. The eigenvalue of this component was 1.113 and explained 4.123 of the variance. From the items, MO1 scored the highest factor weight of .891, the second highest weight in this component was MO3 with a factor weight of .854, and the third highest factor weight was scored by MO3 with a value of .508.

Association analysis of the study variables

To analyze the correlation between variables as shown in the Table 5 , the relation between subjective norms with taxpayers engaged in tax evasion is r = 0.240 ( p < 0.05); this indicates that there is a statistically significant relationship between the two variables. The relationship between ATB with TE, MO with TE, TK with TE, and TF with TE, the Pearson correlation result is r = 0.318 ( p < 0.05), r = 0.371 ( p < 0.05), .446, and r = 0.691 ( p < 0.05) respectively and statistically significant. It implies that the independent variables have a positive relationship with the dependent variable of the study with a statistically significant level of p < 0.05 and n = 370.

Effect analysis of the study variables

As shown in Table 6 , the study independent variables (SNS, ATB, MO, TK, and TF) explained the study dependent variable (TE) by 54.9%. This result indicates that there are other variables that explain the dependent variable by 45.1% which has not been investigated under this study.

Hypothesis test

The proposed hypothesis of the study has been tested based on the coefficient of regression and the “ p ” value of the study variables. The detail result is described as follows:

As shown in Table 7 , moral obligation influences positively the taxpayers to engage in tax evasion activities with a beta value of .177 and p < .05. This result entails that the taxpayers are influenced by other stakeholders to engage in tax evasion, and they have low moral value to pay the tax levied by the government. This result is supported by the finding of Alleyne and Harris ( 2017 ), Rantelangi and Majid ( 2018 ), and Sadjiarto et al. ( 2020 ). Thus, the hypothesis related to this variable has been rejected because moral obligation influences positively taxpayers to engage in tax evasion.

H 2 . Tax fairness has a positive influence on taxpayers to engage in tax evasion

To minimize the participation of taxpayers engaged in tax evasion, tax fairness plays a significant role. The regression result indicates in Table 7 that tax fairness positively influences the taxpayers to engage in tax evasion. This result is similar to the finding of Majid et al., ( 2017 ) and contradicts with the finding of Rantelangi and Majid ( 2018 ) and Alkhatib et al. ( 2019 ). Accordingly, the proposed hypothesis has been accepted because the beta value is .563 and the p value is less than .05.

H 3 . Tax knowledge has a negative influence on taxpayers to engage in tax evasion

Table 7 shows that tax knowledge influences the taxpayers positively to engaged in tax evasion. The beta value is .183 and the value is p = 0.00. It is known that when the taxpayers were not well informed about the importance of tax for the country development and the devastating issues of tax evasion, they will be forced to engage in tax evasion. This finding contradicts the finding of Rantelangi and Majid ( 2018 ) and is supported by the finding of AlAdham et al. ( 2016 ). To conclude, the proposed hypothesis rejected because tax knowledge positively influenced the taxpayers to engage in tax evasion.

H 4 . Subjective norms have a positive influence on taxpayers engaged in tax evasion

Table 7 indicates that subjective norms have not been significantly influenced positively by the taxpayers engaged in tax evasion, which means taxpayers were not influenced by others to participate in tax evasion activities. This result is consistent with the finding of Alleyne and Harris ( 2017 ). Thus, the proposed hypothesis is rejected because the variable of subjective norms was not statistically significant with a p value of .099.

H 5 . Tax payers’ attitude towards the behavior has a positive influence on taxpayers to engage in tax evasion

As indicated in Table 7 , attitudes toward the behavior were not significantly influencing the taxpayers to participate in tax evasion with the p value of .985. However, according to the study conducted by Alleyne and Harris ( 2017 ), attitude toward the behavior significantly predicts the intentions of taxpayers to engage in tax evasion. This finding contradicts with this study result. To conclude, the proposed hypothesis has been rejected because the variable is not statistically significantly influencing the taxpayers to engage in tax evasion activities.

According to Table 7 through the examination of coefficients, moral obligation had a positive effect on tax evasion having a coefficient of .197. This means that a 1% change in moral obligation keeping the other things remain constant can result to motivate taxpayers to engage in tax evasion by 19.7% in the same direction. This finding is similar to the result of Alleyne and Harris ( 2017 ), Nangih and Dick ( 2018 ), Rantelangi and Majid ( 2018 ), and Sadjiarto et al. ( 2020 ). Tax knowledge had a positive effect on tax evasion having a coefficient of .174. This indicates that a 1% change in tax knowledge keeping the other things constant can result in a change in taxpayers to engage in tax evasion by 17.4% in the same direction. This finding contradicts the finding of Rantelangi and Majid ( 2018 ) and is similar to the finding of AlAdham et al. ( 2016 ) and Thu ( 2017 ). Tax fairness also had a positive effect on tax evasion having a coefficient of .468. This implies that a 1% change in tax fairness keeping the other things remain constant can result in a change in taxpayers engage in tax evasion by .468% in the same direction. This result is similar to the finding of Majid et al. ( 2017 ) and contradicts the finding of Alkhatib et al. ( 2019 ) and Rantelangi and Majid ( 2018 ). Thus, the final model of the study would be:

Tax evasion = .623 + .197MO + .174TK + .468TF

To generalize, the standardized beta coefficient indicates that tax fairness highly affects taxpayers to engage in tax evasion by 56.3%, tax knowledge affects secondly taxpayers to engage in tax evasion by 18.3%, and moral obligation affects taxpayers to engage in tax evasion by 17.7%. The remaining variables subjective norms and attitude towards the behavior were not statistically significant.

Conclusion and recommendations

Every citizen of the country was subjected to pay the tax of the country levied by the authority that administered the revenue. However, the taxpayer may be reluctant to pay a tax based on their revenue. There are push factors that instigate payers to engage in tax evasion. Sometimes the payers may be convinced themselves that being engaged in tax evasion is ethical, others may consider it unethical. They may argue “I Do Not Receive Benefits, Therefore I Do Not Have to Pay” (Robert, 2012 ). This study tried to examine the factors that influence taxpayers to engage in tax evasion by identifying five factors namely moral obligation , tax fairness , tax knowledge , subjective norms , and taxpayers’ attitude towards the behavior . The study findings based on the result analysis described as follows.

The correlation analysis of the study shows that there was a positive and statistically significant relationship between independent variables with the dependent variable (tax evasion). The regression result, on the other hand, revealed that tax knowledge affects taxpayers to participate in tax evasion activities with a statistically significant level. This finding can be evidence that the knowledge of the taxpayers regarding the importance of tax is limited. Because according to the regression result, they engaged in the tax evasion activities in the study area. The other factor that affects taxpayers to engage in tax evasion is tax fairness. The regression result of tax fairness supported that taxpayers have been affected by the fairness of the tax system in the study area to participate in tax evasion. The finding confirms that the tax charged by the government is not fair for payers. Thus, we can conclude that due to the absence of tax fairness taxpayers are engaged in tax evasion in the city administration. The other variable moral obligation regression result confirms that moral obligation affects positively taxpayers to engage in tax evasion. This is signal that taxpayers did not know the moral value of retaining from tax evasion that is why the moral obligation results in positive and statistical significance. Generally, tax fairness highly affects taxpayers to evade taxes, tax knowledge affects secondly, and moral obligation affected tax payers thirdly to evade tax in the city administration.

Based on the findings, the following recommendations have been forwarded by the researcher. The first one is creating a fair tax payment system, or charging fair tax for the payers helps to reduce the participation of payers in tax evasion. The second recommendation is cascading different training related to tax will help taxpayers to pay a tax based on their annual income. The last recommendation is related to tax moral or moral obligation. The moral is an abounding rule for human beings to know the right and wrong activities. The authority is better to strive to recognize the payers about the moral obligations of the payers and better to inform to the payers to think about the shattering effect of tax evasion for the country development and city as well.

Further future lines of research will attempt to:

Investigate the employees’ side of tax authority and the perception of the community towards tax evasion.

Explore other influencing factors that affect tax payers to engage in tax evasion which are not incorporated under this study.

Conducting a comparative study on one city, region, and country with others.

Suggestion for future study

This study addresses only one city administration in Amhara region; other researchers are better to undertake the study on one more cities.

Availability of data and materials

All data are included in the manuscript and available on hand too.

Abbreviations

Attitude towards the behavior

• Moral obligation

Micro and small enterprises

Subjective norms

• Tax evasion
• Tax fairness
• Tax knowledge

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Kassa, E.T. Factors influencing taxpayers to engage in tax evasion: evidence from Woldia City administration micro, small, and large enterprise taxpayers. J Innov Entrep 10 , 8 (2021). https://doi.org/10.1186/s13731-020-00142-4

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• PRACTICE & PROCEDURES

Practical highlights of recent tax research

• Individual Income Taxation
• Personal Financial Planning
• Tax Planning
• Practice Management & Professional Standards
• Client communications
• IRS Practice & Procedure
• Collections, Liens & Levies
• Employee Benefits

Perhaps more than ever, recent years demonstrate the increasing importance of taxation for both businesses and individuals. This article distills research published in tax and accounting journals of interest to tax practitioners. The first study presents evidence on the importance of training for tax professionals in dealing with contentious client interactions. The next three studies provide insights on taxpayer responses to tax incentives and government efforts to increase tax compliance and awareness. A final study examines how companies adjust their tax planning decisions in response to those of their competitors. Collectively, these studies have been published in The Journal of the American Taxation Association , National Tax Journal ,and Journal of Accounting and Economics.

A recent study in The Journal of the American Taxation Association examines the relationship between tax professionals and their clients when a disagreement occurs due to a controversial tax position. 1 In contrast to the frequently researched subject of auditor - client relationships, tax professional - client interactions are seldom examined. Phase one of the two - phase study surveyed public accounting professionals to gather information about the types of contentious client situations that occur, the persuasion tactics used, and the relationship status between tax professional and client after resolution of the issue. Based on information gathered in phase one, the authors created a second survey to analyze details about the nature of contentious interactions, persuasion tactics used, negotiation training received, and recommendations from survey respondents.

Authors Donna Bobek, Derek Dalton, Amy Hageman, and Robin Radtke sent 5,200 emails to a list of South Carolina CPAs for phase one and 4,260 emails from the same list for the follow - up survey. The 140 respondents averaged over 25 years of experience, with the majority serving as partner or equivalent, and were employed by a variety of firm types and sizes.

Survey results show that the most challenging interactions occurred when a client demanded an overly aggressive position to reduce taxes. Professionals with less experience, and concerned about client retention, felt the most pressure. While most respondents indicated the need for training in the areas of negotiation, persuasion, and interpersonal skills, only 10% of professionals in the study had such a program in their firm.

The authors of the research, titled "An Experiential Investigation of Tax Professionals' Contentious Interactions With Clients," conclude with several recommendations. Firms need to develop formal training and mentoring relationships. Professionals should be clear in their communications with clients and should maintain detailed documentation of contentious conversations. The survey revealed that the most effective tactic to persuade a contentious client is to express concerns over penalty exposure. The authors suggest that less - experienced professionals should seek advice from those with more experience. Finally, the study showed the value of remaining objective and composed throughout all client interactions.

Individual retirement accounts (IRAs) play an important role for U.S. retirement savings. One - third of U.S. households (over 40 million) owned at least one IRA in 2018, and the total asset value of these IRAs was approximately $9.5 trillion, or about 33% of total U.S. retirement assets. Traditional IRAs defer taxation on contributions and gains until funds are withdrawn. To prevent taxpayers from living off of other income and never taking taxable withdrawals, the required minimum distribution (RMD) rules force account holders to begin withdrawing a minimum amount each year, beginning the year after which they reach age 72 (age 70½ if born before July 1, 1949). These distributions are taxed as ordinary income.

The RMD amount varies each year and is based on the IRA account balance and the taxpayer's age. The RMD is about 3.9% of the IRA account balance at age 72 and gradually increases to about 8.8% at age 90. Taxpayers must take RMDs from each IRA account owned, as well as from certain other retirement plans (e.g., 401(k) plans). Penalties for not taking RMDs are substantial — a 50% penalty tax on the undistributed required amount, in addition to the regular income tax that is due.

While tax - deferred IRA accounts are an effective tool to incentivize taxpayers to save for retirement, policymakers must weigh this benefit against the cost of forgone government tax revenues — approximately $17.8 billion in fiscal year 2018. The RMD rules are designed, in part, to ensure the government begins collecting its tax revenues sooner rather than later. But do the RMD rules actually cause taxpayers to withdraw more than they otherwise would? It is important for policymakers to understand how the RMD rules affect taxpayers so they can adjust the rules and help incentivize the desired behavior.

Authors Jacob Mortenson, Heidi Schramm, and Andrew Whitten used administrative tax data collected by the IRS, consisting of 1.8 million IRA holders from 2000 to 2013. They found that the RMD rules are strongly binding. 2 For every age group above 70½ years, distributions are concentrated at the RMD amount. This suggests that a significant portion of taxpayers are withdrawing only the amount required to avoid the penalty and would prefer to withdraw less. Overall, the authors estimate that about 50% of individuals would prefer to withdraw less than their RMD and that this percentage increases with age. For example, the authors estimate that between 60% to 70% of the oldest taxpayers (ages 85-100) would prefer to withdraw less. The authors also found that people tend to close their IRA accounts when they turn 70½ and the RMD rules begin, especially when their account balance is small. This suggests that some IRA holders view the hassle of complying with the RMD rules as outweighing any benefits from their IRA's tax deferral.

Last, the authors examined the effects of a 2009 temporary suspension of the RMD rules, passed by Congress in response to the financial crisis and depressed asset values. Interestingly, they found that about 26% of individuals made a withdrawal in 2009 that closely approximated what their RMD would have otherwise been, even though no distribution was required, and only 35% of those who took RMDs in 2008 suspended them for 2009. The authors discuss that this possibly occurred for several reasons. Taxpayers could have been inattentive to the temporary suspension, thought it was too much trouble to change the RMD for one year, or may have believed the RMD amounts provided reasonable guidance on withdrawals. The study's results on the 2009 temporary suspension are especially informative and timely given that the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116 - 136 , waived taxpayer RMDs for 2020 in response to the coronavirus pandemic.

A field experiment conducted with the Colorado Department of Revenue (DOR) investigated the wording on delinquent income tax notices to see if specific variations could affect tax collections. The over - 90 ,000 households analyzed in the study owed more than $85 million in state income tax. Typically, only 34% of taxpayers receiving delinquency notices made full payment by the deadline. Researchers Taylor Cranor, Jacob Goldin, Tatiana Homonoff, and Lindsay Moore conducted the study to examine the change in compliance based on modifications to one sentence in the standard tax delinquency notice. 3

Four tax notice versions were sent randomly to delinquent taxpayers. One version provided greater details about late - payment penalties, stating the specific interest rate and highlighting that the penalty would increase for each month not paid until the "statutory maximum is reached." A second letter discussed penalties, including an incentive to make payment to avoid the interest rate doubling after 30 days. The third delinquency notice stated the interest rate effective for 30 days and included an appeal to social norms, stating that 90% of Colorado taxpayers pay their taxes on time. Finally, the control version, sent by the DOR in prior years, stated that the delinquent taxes included interest and penalties according to state law but indicated nothing specific about further penalties.

Results showed that the notice containing detailed wording about increasing penalties improved compliance by 4.1% compared with the control notice, as measured by the fraction of taxpayers creating a payment plan or making a full payment before the statutory deadline. The notice reminding taxpayers of increasing penalties that omitted specific details other than the avoidance of future interest increases improved compliance by approximately 2%. Finally, the notice appealing to social norms resulted in the same compliance rate as the control/standard notification. The compliance rates across notices were similar at low (under $95), medium ($95 to $433), or high (over $433) balances of tax due. The authors suggest that emphasizing delinquency penalties through relatively minor wording changes could result in increased collection and a reduced need for more extensive tax collection actions.

Numerous tax policies are put in place to help low - income households; however, these policies are only effective in achieving their goals if they are used as intended to benefit qualifying taxpayers. The earned income tax credit (EITC), established in 1975, is a refundable tax credit meant to subsidize low - income working families. The credit amount depends on a household's income, filing status, and number of qualifying children. The credit rises with earned income until it reaches a maximum level and then begins to phase out at higher income levels. For 2019, the maximum credit ranged from $529 for a single taxpayer with no qualifying children, to $6,557 for a married couple with three or more children. The maximum income at which married taxpayers with three or more children could claim an EITC was $55,950, although the credit is quite small ($6) at this income level. In 2016, over 27 million households claimed the EITC; about 20% of all U.S. taxpayers. However, data shows that 20% of eligible households (about 5 million) do not take advantage of the credit.

In an effort to increase taxpayer EITC claims, seven states and one city implemented a variety of laws requiring employers to inform their employees about the EITC, either through mailings, annual notifications, or posted notices in the workplace. Using IRS data from 2000-2014, authors Taylor Cranor, Jacob Goldin, and Sara Kotb examined the effectiveness of the government - mandated taxpayer notifications. 4

Results reveal that while approximately 5 million qualifying U.S. households do not take the credit, a minimal increase (0.3%) occurred in states or jurisdictions that provided notification compared with states that did not notify employees. The study suggests several reasons for the ineffectiveness, including taxpayers who do not use tax software for filing, taxpayers who do not file a return and thus are unaware of the refundable nature of the credit, a failure to read or understand the notifications, and noncompliance by employers. The authors recommend that notifications should focus on the EITC's benefits rather than laws, encourage taxpayers to use tax preparation software, and educate taxpayers about the EITC for childless taxpayers.

Evidence shows that corporate decisions on research and development (R&D), advertising, and capital expenditures are influenced by management's expectations of how their peers will behave. For example, if a firm's competitors are investing in R&D, then firm management may choose to increase or decrease R&D to a comparable level. In this instance, the firm is strategically reacting to its competitors' behavior. Authors Christopher Armstrong, Stephen Glaeser, and John Kepler examined whether strategic behavior also occurs when firms make tax planning decisions. 5 Specifically, does a firm's management adjust its own tax planning decisions in response to their competitors' tax planning decisions?

To examine whether firms exhibit strategic behavior in tax planning decisions, the authors examined two different tax settings and attempted to isolate corporations' strategic reactions to the tax planning choices of their competitors. The first setting is the reduction in corporate tax rates in Ireland, where tax rates decreased from 32% to 12.5% between 1998-2003. The second setting is the staggered adoption by different states of tax policies designed to limit interstate income shifting to Delaware, a state that does not tax income earned from intangible assets.

In both the Irish and Delaware settings, the authors found that a firm's tax planning decisions appear to be influenced by the choices of their competitors. In the Irish setting, firms not directly benefiting from the tax rate decreases made other tax planning choices that lowered their tax liabilities. This suggests that these firms strategically responded to their competitors by changing their own tax planning decisions. Conversely, firms not negatively impacted by the limits on shifting income to Delaware responded by making choices that increased their state taxes. The authors attribute these reactions to firms not wanting to appear more aggressive than their competitors, since this could bring unwanted attention from tax agencies and other stakeholders. The study also found that firms adjust their own tax planning as they learn from the tax planning decisions of their industry competitors.

Overall, the research suggests that policymakers should consider both direct and indirect effects of policy choices on firms' tax planning behavior to avoid underestimating the potential effect on a government's tax revenues.

1 Bobek, Dalton, Hageman, and Radtke, "An Experiential Investigation of Tax Professionals' Contentious Interactions With Clients," 41 - 2 The Journal of the American Taxation Association 1 (Fall 2019).

2 Mortenson, Schramm, and Whitten, "The Effects of Required Minimum Distribution Rules on Withdrawals From Traditional IRAs," 72 - 3 National Tax Journal 507 (September 2019).

3 Cranor, Goldin, Homonoff, and Moore, "Communicating Tax Penalties to Delinquent Taxpayers: Evidence From a Field Experiment," 73 - 2 National Tax Journal 331 (June 2020).

4 Cranor, Goldin, and Kotb, "Does Informing Employees About Tax Benefits Increase Take - Up ? Evidence From EITC Notification Laws," 72 - 2 National Tax Journal 397 (June 2019).

5 Armstrong, Glaeser, and Kepler, "Strategic Reactions in Corporate Tax Planning," 68 - 1 Journal of Accounting and Economics (August 2019).

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January 6, 2020

Evaluating State and Local Business Tax Incentives

This paper is now published in the Journal of Economic Perspectives .

In early 2019, following a long and highly publicized campaign, Amazon’s search for where to locate its new headquarters finally came to an end. In January, the Virginia Senate approved a package of up to $750 million in state business tax incentives in exchange for Amazon building its HQ2 in Arlington.

Though the incentives offered by various localities in order to attract HQ2 were atypically large, business tax incentives offered by state and local governments—which aim to encourage firms to expand into local areas, generate investment, and create jobs—have tripled since the 1990s[i]. In many ways, they have become the primary place-based policy in the U.S.

And yet despite the growing enthusiasm for place-based policies, in general, it remains unclear whether the high costs of these incentives are justified, or if the tax competition they produce at the local level harms national economic interests. These concerns, alongside public outcries around large, high-profile incentive packages like those offered to Amazon, have led some policymakers to propose banning these incentives.

In   a new paper now published in the Journal of Economic Perspectives (PDF), the authors use a unique dataset and new methodology to contribute concrete statistics that describe the landscape of state and local business tax incentives across all 50 U.S. states. They estimate that state and local governments spend at least $30 billion a year on business tax incentives. Further, about a quarter of all business tax incentives are channeled to a very small collection of firms opening offices in new locations—less than .01% of firms opening in new locations in 2014—in the form of firm-specific subsidies (i.e., subsidies offered exclusively to a single company, like those offered to Amazon, in an attempt to draw it to a specific locality). They also attempt to answer a number of open questions around the economic effects of state and local business tax incentives and make recommendations for how to improve further study.

The paper builds off a unique dataset built by Slattery and first employed in her  award-winning 2019 paper  (PDF) that studied state and local incentive “bidding” processes and estimated the efficiency of incentive competition. The dataset is unique in that uses a variety of sources to compile data on firm-specific subsidies that did not previously exist.

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Top-level findings on spillover effects

While the authors find some evidence of direct employment gains from attracting a firm via incentives, they do not find strong evidence that firm-specific tax incentives increase broader economic growth at the state and local level. They document an average growth of roughly 1,500 jobs within the specific industry of each deal. They don’t, however, see strong evidence of job growth in other industries or an effect on county-wide employment.

They also find a small effect on housing markets, with localities that attract new firms via incentives seeing, on average, a 4% decrease in house prices. This apparent decline in house prices provides some weakly suggestive evidence that the welfare effects of these subsidies might be negative on average.

Taken together, our findings suggest that any argument for the continuation of state and local business tax incentives must demonstrate that these policies improve equity, either by improving economic conditions in the most distressed places or by improving the well-being of underemployed and low-income workers. Whether or not incentives can achieve these goals more effectively than other policies remains an open question.

Facts on state and local business tax incentives across the U.S.

Our study considers three types of tax incentives: state corporate taxes (lowering corporate tax rates), state tax credits for firms based on activity or industry (narrowing the corporate tax base), and firm-specific subsidies.

While our full paper includes an in-depth discussion of the trade-offs involved in each of these approaches, here they share some top-level statistics from our analysis of these three types of incentives employed across all 50 states from 2002 to 2017.[ii]

1. Using a new methodology, they estimate that state and local governments spend at least $30 billion a year on business tax incentives. To arrive at this estimate, they combine estimates of state business tax incentive spending from Slattery’s “expenditure-based” approach with those made by Bartik (2017) using a different “rules-based” approach. They combine estimates from these two approaches to incorporate local incentive spending; Barik’s data include local incentive spending, but Slattery’s state-level data do not.

Looking at the year 2014, Slattery estimates that state governments spent at least $20 billion on firm-specific and other business tax incentives. Assuming the same relative contribution from local governments as Bartik’s estimates would imply, total state plus local incentives amount to at least $30 billion.

They consider $30 billion a year to be a low-end estimate of what state and local governments spend per year on all tax incentives combined. Previous estimates by Bartik, using the “rules based” approach, estimate $45 billion a year.

2. When compared to spending on other public benefits, the cost of business tax incentives is far from negligible.  According to our new estimates, state and local governments spent between $5 and $216 per-capita on business tax incentives in 2014. For the full sample of states, per capita spending amounted to 23% of public safety spending, 13% of health and hospital spending, 11% of transportation spending, and less than 5% of education spending.

Top per capita spenders include Michigan, West Virginia, New York, Vermont, and New Hampshire. Their per capita incentive spending in 2014 amounts to 56% of public safety expenditures, 40% of spending on health and hospitals, 30% of transportation, and 12% of education.

3. Political factors play a big role in whether firms earn incentives.  In our raw data, per capita incentive spending increases by more than 20% in half of the cases in which it is an election year and the governor is up for re-election versus one-fifth of the cases otherwise.

4. Incentives amount to a large portion of state corporate tax revenue—and in some states exceed corporate tax revenues.  Collectively, business tax incentives amounted to nearly 40% of state corporate tax revenues for the typical state. However, there was significant heterogeneity in business taxes and incentives across states. States with higher per capita incentives tend to have higher state corporate tax rates. Of course, states with higher corporate tax rates are able to offer “larger” tax incentives because the tax incentive serves to reduce the corporate tax rate.

Importantly, incentive spending in some states exceeds corporate tax revenues. There are five states—Nevada, South Dakota, Texas, Washington, and Wyoming—which have zero corporate income tax revenue, but spend about $44 per capita on incentives.

5. About a quarter of all state and local business tax incentives is in the form of firm-specific subsidies that go to a very small collection of those U.S. firms establishing offices in new locations. Using Slattery’s “narrative-based” approach that tracks each deal based on public reporting, they also estimate the annual cost to states of firm-specific subsidies, i.e., subsidies like those offered to Amazon that, unlike other tax incentives that would apply either to all firms or to any firm that meet certain criteria, are only offered to one business.

Looking at all state firm-specific subsidies combined from 2002-2017, they find 543 subsidies totaling $96 billion. Looking at a specific year, however, can illustrate just how few firms receive these benefits and how few jobs they support. In 2014, 670,000 firms establishing offices in new locations created more than 5 million new jobs. In that same year, states gave $6.9 billion to 48 firms establishing offices in new locations and promising a total of 50,000 jobs. That means in 2014, states spent about $7 billion—or about a third of all state incentive spending—on incentives that went to .0072% of new firms and 1.41% of all jobs created by those firms. The picture is starker if they consider that all new jobs created in the U.S. totaled 16 million in 2014. Importantly, our data on these firm-specific subsidies does not include smaller incentive packages of less than $5 million. Therefore, they believe this estimate is on the low-end.

While the number of firm-specific subsidies has fluctuated over time, they generally increased from 2002-2017, with a minimum of 14 firm-specific subsidies offered in 2003, and a maximum of 53 firm-specific subsidies offered in 2012.

6. The cost per-job of firm-specific subsidies has increased over time, with the average cost per job per-year amounting to about $12,000. Importantly, there is considerable variation, and measuring the cost per-job per-year is difficult given that subsidies flow over a period of ten years and job churn, discount rates, and more must be factored in. They assert, however, that dividing the cost per-job of a subsidy by ten provides a crude, optimistic measure of a subsidy’s cost per-job per-year. Over the entire sample of discretionary incentives, firms receive $178 million on average and promise about 1,500 jobs at the establishment. The cost per job is $120,000 at the mean—or $12,000 per-job per-year. There is considerable variation, from $1,300 per-job per-year at the 10th percentile to $100,000 per-job per-year at the 90th percentile.

7. Poorer areas provide larger incentives and spend more per job, but firms accept subsidies from places that are richer, larger, and more urban than the average county.  Counties with an average wage of less than $40,000 pay over $400,000 per job in the average subsidy deal. Meanwhile, counties with average wages over $100,000 pay less than $100,000 per job in a given subsidy.

This pattern may also be driven by differences in profitability—distressed places may need to provide larger incentives to attract firms. There is little evidence on who benefits from these policies across the income distribution and whether those experiencing wage gains were mostly prior residents, unemployed, or working-class individuals. These are open and important questions.

8. Firm-specific subsidies most often go to large establishments in manufacturing, technology and high-skilled services industries, with auto manufactures receiving 10% of all firm-specific subsidies.  More than 30% of all firms opening offices in new locations with over 1,000 employees receive firm-specific subsidies, while the percentage is less than 0.2% for establishments with under 250 employees.

The fact that large, profitable firms are most likely to receive firm-specific subsidies is not surprising, and research suggests attracting these firms will produce the most economic spillover effects. An open question, however, is whether subsidies are more likely to go to a firm based on its product or labor market characteristics. Automobile manufacturing firms are the most “popular” industry, with 56 subsidies, or 10% of the total sample. The average automobile manufacturer promises to create 2,700 jobs and receives $290 million—over $100,000 per job.

Other industries get large subsidies, but do not promise as many jobs. For example, basic chemical manufacturing subsidies amount to almost $1 million per job. Establishments in this industry, however, often make large capital investments, have high fixed costs to entry, reduce local energy costs for other firms, and become settled future taxpayers. They may also lobby aggressively.

Recommendations for further study

State and local governments spend considerable revenue on business tax incentives. In terms of local economic effects, however, we find limited evidence that subsidized firms have employment spillovers in the local economy. As such, the argument for business tax incentives as an effective place-based policy must rest heavily on equity considerations—an area that demands much more study.

To support such research, policymakers should design incentives with equity issues in mind—allowing researchers to evaluate the extent to which these policies actually “trickle down”—and tighten eligibility and implementation requirements for targeted incentive programs. Lenient eligibility requirements of the new Opportunity Zone program, for example, may not be as effective at targeting distressed regions as past programs with similar goals and stricter criteria.

Finally, policymakers can support additional research by improving data transparency. While there have been recent efforts to increase transparency,[iii] new reporting requirements give too much discretion to governments in terms of what to report and how to report it. The data are not yet uniform, comprehensive, or high-quality. Despite these new accounting rules, roughly half of municipalities have not disclosed any revenue lost to tax incentives in their annual financial reports.[iv]

[i] Bartik, 2019

[ii]Our data allows us to study firm-specific subsidies from 2002 to 2017. For other state-level incentives, the time-frame of study is 2007-2014.

[iii]https://www.goodjobsfirst.org/gasb-statement-no-77

[iv]Farmer, 2018

The Official Journal of the Pan-Pacific Association of Input-Output Studies (PAPAIOS)

• Open access
• Published: 09 May 2020

Tax structure and economic growth: a study of selected Indian states

• Yadawananda Neog   ORCID: orcid.org/0000-0002-3578-0460 1 &
• Achal Kumar Gaur 1  

Journal of Economic Structures volume  9 , Article number:  38 ( 2020 ) Cite this article

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The present study examines the long-run and short-run relationship between tax structure and state-level growth performance in India for the period 1991–2016. The analysis in this paper is based on the model of Acosta-Ormaechea and Yoo ( 2012 ), and for the verification of the relationship between taxation and economic growth the panel regression method is used. With the use of 14 Indian states data, Panel Pool mean group estimation indicates that income tax and commodity–service tax have negative effects whilst property and capital transaction tax have a significant positive effect on state economic growth. This study finds ‘U’ shape relationship between tax structure and growth performance. Based on the analysis, we conclude that for faster growth of Indian states, policymakers should give more focus on property taxes along with the reduction in income taxes.

1 Introduction

The study on the potential association between tax structure and growth performance has gathered a great deal of attention from policymakers, academicians and regulatory circles for several reasons. First, the developing and emerging economies require a large volume of tax revenues for the smooth and efficient functioning of the state at both the national and sub-national levels. Globalization has laid down the foundation for Goods and Service Tax (GST) in many developing countries (Mcnabb 2018 ). Due to competition, developing countries are also facing the difficulties to maintain existing tax revenues (Bird and Zolt 2011 ). Second, tax collection and structure of it create distortionary impacts in the economy through tax burden. Thus, the positive and negative impact of tax made the ‘tax–growth’ relationship more complex and the structure of taxation has a definite role in the development process of an economy.

In a budget constraint economy like India, investigation of tax–growth relationship enables us to formulate the suitable policy measure for the more inclusive and equitable growth process. The budget crisis is usually resolved through the cut-down of public spending or/and an increase in tax revenues (Macek 2014 ). Rapid reduction in spending or increase in taxes is harmful to long-run growth performance. Thus, the concern of the government lies with the problem of fiscal consolidation with sustainable growth performance where tax policies are vital.

Empirical evidence on the impact of tax structure on growth performance is not conclusive. India has adopted the Goods and Service Tax (GST) policy in 2017 intending to raise indirect tax collections and transform the indirect tax structure into a single market to avoid tax evasions and double taxation. GST is regarded as one of the major tax policy changes in independent India and economists are an optimist about its impact on revenue generations and growth performance. But this policy is not the only policy that shaped in independent India; other major policy changes also take place after independence. Footnote 1 Tax Reform Committee (TRC) report of 1991 regarded one of the productive and structured policy recommendations in the recent decade. At the state level, sales tax reform in the form of Value Added Tax (VAT) in 2005 becomes a fruitful policy initiative. However, the tax collections in both national and sub-national level are still low as compared to the international standards. Changes in tax policy also change in the tax structure in the economy and India witnessed these changes at both levels of governments. Recent studies proved that the changes in tax structure have decisive implication in the growth performance through work–leisure behaviour, investment decisions and overall productivity (Arnold et al. 2011 ; Gemmell et al. 2011 ; Macek 2014 ; Mdanat et al. 2018 ; Durusu-Ciftci 2018 ). In India, very few empirical studies are available which analyse the impact of these changes in tax structure on growth performance and this study will be first to investigate tax–growth nexus in India with the use of state-level data.

This analysis primarily concerned with tax structure rather than to tax levels (usually measured as a tax–GDP ratio). The main advantage of tax structure analysis is that it provides revenue-neutral tax policy changes which remove the difficulties related with the question of how aggregate tax revenue changes relates with expenditure changes (Arnold et al. 2011 ). The empirical results from linear panel regression suggest us that property and capital transection tax are positively affecting the state’s growth performance, where commodity and service tax effect negatively. However, the non-linear panel regression indicates that the positive effect is only visible for property taxes at a higher level where the negative effect of commodity and service taxes becomes positive after a threshold point. The effect of income tax is not significant in long run irrespective of panel regression models.

The structure of the paper is as follows: Sect.  2 deals with the theoretical framework and empirical literature, followed by a brief description of data and methodology in Sect.  3 . Empirical results and discussion are presented in Sect.  4 and our last Sect.  5 is for conclusions and recommendations.

2 Theoretical framework and empirical literature

Growth literature very recently acknowledges the role of taxation in the growth process of an economy. Until recently, growth models are more concerned with the steady-state process and exogenous changes. On the theoretical ground, taxation does not have any impact on growth (Myles 2000 ). Development of endogenous growth models creates the space for fiscal policy especially tax policy in determining the growth performance. Barro ( 1990 ), King and Rebello ( 1990 ) and Jones et al. ( 1993 ) were the pioneer in this regard. Tax level and tax structure have an impact on the saving behaviour of the household and investment in human capital. On the other hand, the firm also changes its investment decisions and innovations following tax policies (Johansson et al. 2008 ). These decisions and incentives in the accumulation of physical and human capital create the ‘Growth’ disparities amongst the countries and state economies.

A large body of literature available on “Tax-Growth” relationship is mostly dedicated to cross-country settings (Martin and Fardmanesh 1990 ; Karras 1999 ; Myles 2000 ; Tosun and Abizadeh 2005 ; Johansson et al. 2008 ; Vartia et al. 2008 ; Arnold 2011 ; Szarowska 2013; Macek 2014 ; Stoilova 2017 ; Safi et al. 2017 ; Durusu-Ciftci 2018 ) that investigates the effect of tax policy on economic performance. Income and corporation taxes are the major tax instruments for the governments irrespective of the level of developments of a country. The formation of tax structure with these two taxes has many implications in the growth performance. The study made by Arnold et al. ( 2011 ), Macek ( 2014 ) and Dackehag and Hansson ( 2012 ) has explored the negative relation of income and corporation tax with growth performance. Vartia et al. ( 2008 ) find the negative impact of corporation tax for OECD countries. If we consider the average and marginal tax rate, marginal tax is very influential than to average tax rate in investment decisions and labour supply. Empirical studies prove that marginal tax has a negative relation with growth, which indicate raising of marginal tax rate is associated with compromises with growth performance (Padovano and Galli 2001 ; Lee and Gordon 2005 ; Poulson and Kaplani 2008 ). Studies also established that other type of taxes also has a significant impact on growth performance, like consumption tax (Johansson et al. 2008 ; Durusu-Ciftci 2018 ), GST and Payroll (Tosun and Abizadeh 2005 ), property tax (Xing 2011 ), labour tax (Szarowska 2014 ), sales tax (Ojede and Yamarik 2012 ), excise (Reynolds 2006 ), etc.

However, looking at the single country’s perspective, we find very little evidence on the same. Stockey and Rebelo ( 1995 ) with the use of the endogenous growth model study the role of tax reforms on U.S. growth performance. They have found that tax reforms have very minor implication with economic outcomes. There are several studies exist for US economy where they empirically try to establish the link between tax and growth. Atems ( 2015 ) finds the spatial spillover effect of income taxes on the growth of 48 contiguous states. On the other hand, Ojede and Yamarik ( 2012 ) have not found any kind of impact of income taxes on growth in these states. Their panel pool mean group estimation indicates that property and sales tax has detrimental consequences in development. With the use of data for the U.S. covering the period of 1912–2006, Barro and Redlick ( 2009 ) find that average marginal income taxes were halting the economic growth. However, they have provided an interesting argument that in wartime, the tax does not have any kind of relation with growth. In search of an answer to the question that whether corporate tax rise destroys jobs in the U.S., Ljungqvist and Smolyansky ( 2016 ) use firm-level data for the period 1970–2010. The main conclusion of the paper is that a rise in corporate tax is not good for employment and income and has very little impact on economic activity. Using the error correction model, Mdanat et al. ( 2018 ) find for Jordan that income tax, corporation tax and personal tax negatively impact the growth. They suggest that irrespective of tax collection, the prime focus of the government should be social justice of the people. Dladla and Khobai ( 2018 ) also find similar results for South Africa where income taxes are coming out to be negative. For the case of Italy, Federici and Parisi ( 2015 ) used the 880 firms’ data and results show that corporation tax is bad for investments with the consideration of both effective average and marginal taxes rates.

Looking at the literature, the empirical relationship of tax structure with growth performance is still unclear for India. This study attempts to fill the gap by examining the effect of tax policy on economic performance in an emerging economy such as India at the state level. Second, with the use of panel Pool Mean Group (PMG) estimator which assumes slope homogeneity in the long run and heterogeneity in the short run, we can incorporate the dynamic behaviour of the variables which will be new to tax structure–growth study in India. Third, the tax–growth nexus may show a non-linear relationship due to the threshold effect. We consider this non-linearity in our panel regression model which will be a contribution to the existing literature.

3 Data and methodology

To study the effect of tax policy on economic performance in India, we employed three models and included each tax instruments in the models separately to avoid the problem of Multicollinearity. Following the works of Arnold et al. ( 2011 ) and Acosta-Ormaechea and Yoo ( 2012 ), the tax structure is measured by the share of individual tax to the total state tax revenues. We investigate the tax–growth relationship with the following equation.

Here, Y it is the growth rate of Per capita net state domestic product (NSDP), SGI is the state gross investment as a percentage of state domestic product, TAX is one of the tax shares (Property, Commodity & Services and Income), Tax Burden Footnote 2 is the ratio of total tax revenues to state domestic product and ϵ is the error term. Per the work of Acosta-Ormaechea and Yoo ( 2012 ), this study is more concerned with the impact of tax structure on growth rate rather than level effect. In model 1, we include property tax share, and in model 2 and model 3, we incorporate commodity & service tax and income tax, respectively. By following the approach of Arnold et al. ( 2011 ), we include total tax burden as a control variable which will reduce the biases that may occur from correlation in between tax mix and tax burden. We also included Secondary Enrollment Rate as a proxy variable for human capital in our model, but the inconsistent and insignificant results make us drop the variable from the final estimation model.

In search of a possible non-linear relationship, we introduce a separate panel regression by introducing the square of each tax share into the models.

If the coefficient of α 3 significant and carries an opposite sign to α 2 , then we can conclude that there is a non-linear relationship exist.

In this study, we included 14 Indian states for the period 1991 to 2016 and excluded North-Eastern states due to their relatively small tax revenue collections. Data have been taken from the Centre for Monitoring Indian Economy (CMIE) and Handbook of Statistics on the Indian States, published by Reserve Bank of India. The states that are included in this study are Andhra Pradesh (undivided), Footnote 3 Assam, Gujarat, Haryana, Himachal Pradesh, Jammu & Kashmir, Karnataka, Kerala, Maharashtra, Punjab, Tamil Nadu, Orissa, Rajasthan and West Bengal. All the states are included in model 1 and model 2. For model 3, due to the data availability, we include only seven states Footnote 4 namely Andhra Pradesh, Assam, Gujarat, Karnataka, Kerala, Maharashtra, and West Bengal.

The selection of the study period is primarily driven by the argument provided by Rao and Rao ( 2006 ) that after the market-oriented economic reform of 1991, more systematic and long-term goal-oriented tax reforms were initiated in state level for India. The economic reform also brings rapid growth in India and it becomes very interesting to look at the tax–growth nexus after the economic reform. The second restriction related to the use of long data span is the availability of data for each tax head for each of the states under this study.

3.1 Unit root

Pool Mean Group (PMG) specification is very fruitful and widely used model to capture the dynamic behaviour of policy variables. This model is very powerful as it can investigate both I (0) and I (1) variables in a single autoregressive distributive lag (ARDL) model setup. A necessary condition in the ARDL model is that the model cannot deal with the I(2) variables. Thus, the investigation of stationarity becomes a compulsion. We used popular panel unit root tests like LLC (Levin et al. 2002 ), the IPS (Im et al. 2003 ), the ADF-Fisher Chi square (Maddala and Wu 1999 ) and PP-Fisher Chi square (Choi 2001 ) in this study.

3.2 Panel PMG model

The Mean Group (MG) estimator was developed by Pesaran and Smith ( 1995 ) to solve the issue of bias related to heterogeneous slopes in dynamic panels. Traditional panel models like instrumental variables’ estimator of Anderson and Hsiao ( 1981 , 1982 ) and Arellano and Bond ( 1991 ) may produce inconsistent results in a dynamic panel framework (Pesaran et al. 1999 ). MG estimator takes the average value of every cross-section and provides the long-run estimate for ARDL or PMG. On the other hand, Pooled Mean Group (PMG) estimator developed by Pesaran et al. ( 1999 ) assumes slope homogeneity in the long run but heterogeneous slopes in the short run for cross-section units. Dynamic Fixed Effect (DFE) also works like PMG and restricts cointegrating vector to be equal across all panels and restricts the speed of adjustment to be equal.

Under these assumptions, PMG is more efficient estimator than to MG and DFE estimator. The prime requirement for PMG estimator is that T should be sufficiently large to N. Panel ARDL or PMG works through maximum likelihood. Our basic PMG begins with the following equation.

Here, x it is the vector explanatory variables and y i is the lag dependent variable. X it allows the inclusion of both I (0) and I (1) variables. State fixed effect is captured through μ i . Above equation can be re-parameterized to ARDL format.

ɸ i measures the state-specific speed of adjustment and known as Error Correction Term. Β i is the vector of long-run relationships and α ij and θ ij are the vectors of short-run dynamic relationships. Pesaran et al. ( 1999 ) did not provide any statistical test for checking long-run relationship but it can be concluded form sign and magnitude of Error Correction Term (ECT). If it is negative and less than − 2, a long-run relationship can be established.

4 Results and discussion

Panel unit root test results from Table 1 suggest that in the case of Model 1 & 2, the Growth rate of Per Capita Net State Domestic Product (PC-NSDP), Property tax and commodity taxes are stationary at level. Gross investment and total tax revenue share to GDP are stationary at the 1st difference in all models and income tax share is also stationary at the same order.

5 PMG model results

We have reported MG, PMG and DFE estimation in the Tables  2 and 3 . The Hausman test indicates that the PMG model is the best model for our data than to MG model. Negative and significant error correction terms in all the models show the long-run relationship in between variable. One major issue related to the tax–growth equation is the problem of endogeneity of the variables. As growth in per capita GDP is our dependent variables, there is a possibility that tax collections behave along with business cycles. Therefore, we tested the weak/strong exogeneity of the tax variables through the correlation analysis between business cycles and tax shares. Business cycles have been calculated using the Hodrick-Prescott (HP) Filter. We have found that all the tax instruments are very weakly related to the business cycles movement and thus, we conclude that variables are not truly endogenous.

The speed of adjustment in PMG model 1, 2 and 3 are 78.9%, 78.4% and 79.6%, respectively. For the sake of completeness, we have reported MG and DFE Footnote 5 model results also. But we are more concerned with the results of PMG estimator as Hausman test suggested that PMG is a better model than to MG. The sign of the property tax is positive and significant in the long run as well as in the short run. Results are in line with the findings of Acosta-Ormaechea and Yoo ( 2012 ). Property tax generally considered a good revenue source for state and municipal governments for providing economic and social services in the city. This tax is also able to establish cost–benefit linkages and feasible decisions for the citizens. The positive impact of property taxes indicates that the revenue generation and productive utilization of these revenues exceed the distortionary effect in these states. As we expected, the tax burden is negatively associated with growth performance in both long run and short run. The relationship is showing the distortionary effect of the tax collection in the state economy. In all models, gross investment enhancing the growth in per capita SDP in the long run. Signs are readily justified as enlargement of capital formation has a positive impact on output and employment which channelized to the development outcomes (Swan 1956 , Solow 1956 ).

Commodity and service taxes are negatively related to the growth in per-capita SDP in the long run as well as in short run and findings are similar to the work of Ojede and Yamarik ( 2012 ). Footnote 6 This tax now comes under the Goods & Services taxes, but in the pre-GST period, commodity and service taxes are reducing growth in per capita NSDP. Commodity taxes are indirect taxes and state own tax revenues mostly come from indirect taxes. As indirect taxes, it has certain disadvantages like inflationary pressure in the economy and regressive to the poor section of the society. Our results also support the same hypothesis that increased commodity tax share is harmful. In India, commodity and service tax includes central sale tax, state excise duty, vehicle tax, goods & passenger tax, electricity duty and entertainment tax. Central sale tax was imposed on interstate trade of commodities which is now transformed to Inter-State GST (IGST). According to Das ( 2017 ), if the IGST rate is high to the Revenue Neutral Rate, it will harm the aggregate demand in the economy through the reduction of disposable income. Heavy vehicle and passenger tax collections are creating an abysmal environment for industrial activities. The tax burden variable is also carrying a negative sign in both long run and short run and magnitude is very similar to model 1. Income tax share has become insignificant and positive in the long run and negative insignificant in the short run.

After examining the linear relationships, we extended our analysis to the examination of a non-linear relationship with the use of PMG estimation model. The result from Tables  4 and 5 indicates the existence of a non-linear relationship between tax structure and growth performance for Indian states. The linear coefficient for property taxes has now become negative and the square of it turns out to be positive. Thus, the property taxes show a ‘U’-shaped relationship with states’ growth performance which implies that a rise in property taxes is bad for growth initially and after a threshold point, it becomes growth enhancing. The threshold point for property taxes is 1.88 which indicates that more than 80.77% observation is more than to threshold point.

In the case of commodity and service taxes, both the linear and non-linear coefficients are significant with different signs. However, the coefficient magnitudes are abnormally large and this is due to the inclusion of both linear and quadratic terms into the single equation. The small commodity and service taxes are very bad for the state economy, whereas the large amount of it shows a positive relation. The threshold point for this tax is 4.45 which implies that 79.95% observation lies above the threshold. This is a very interesting result as high commodity and service taxes could lead to high inflation in the economy and high inflation regarded as atrocious for growth. Further investigation of these findings is highly recommendable. As like linear panel regression, the income tax shows no relation in our non-linear regression model also. However, the short-run coefficient for income tax is significant and shows a negative relationship. Income tax is considered to be distortionary tax to the economy in the presence of income and substitution effect (Kotlan 2011 ). Income tax mostly impacts the savings of the households and labour supply which is regarded as an engine of growth.

6 Conclusions and recommendations

In this study, we try to find out the long-run and short-run relationship between different tax structure and economic growth in states of India. Empirical evidence from linear regression suggests that the property tax enhancing growth and commodity & service taxes reduce it. The non-linear regression validates these findings for property taxes where high property taxes are good for growth. In the case of commodity & service taxes, the results become opposite after the threshold point and affecting the growth negatively. Interestingly, we do not find any significant impact of income taxes on growth in both linear and non-linear regressions in the long run.

As far as the total tax burden is concerned, negative relation with the growth performance is verified and results are in line with Arnold et al. ( 2011 ). The negative effect of commodity and service taxes in the short run is expected to be neutralized through the implementation of GST in India. Promotion of growth performance at the state level concerning income taxes is also very crucial. Income tax has a direct effect on individuals and their saving and investment behaviour. On the other side, tax revenues should be placed in productive investments. With the spending, the government can promote inclusive growth, equality and efficiency in the economy.

The most promising path emerged through this study for long-run growth performance in Indian states is to lower the total tax burden and shifting from income and commodity taxes to property tax for revenue generations. The conclusion may be debatable on various grounds as the studied variables do not take into account institutional quality, administrative efficiency in tax collection, fiscal balance and condition of the states and existence of informal sectors. Future research can be done to incorporate these issues.

Availability of data and materials

Dataset analysed in this study is available from the corresponding author on reasonable request.

One can see the writings of Rao and Rao ( 2006 ) for brief discussion.

This is the proxy for total tax burden in the economy with certain limitations. It does not include informal economy and expenditure policies.

Telangana state was established in 2014. We merged the data of Andhra Pradesh and Telangana to achieve aggregate data for undivided Andhra Pradesh.

Data for Income tax are available for ten states, but inclusion of these states made the model inconsistent due to huge fluctuations in tax revenue collections.

Most of the coefficients of PMG and DFE are in similar range and smaller than to MG estimator. This is due to MG estimator only takes the information of each state time series to estimate long-run and short-run coefficients.

They use sale tax, where our study takes aggregate revenue for commodity and services. However, inference can be drawn as sale tax and is one of the dominant contributors in total commodity and service tax revenue in India.

Abbreviations

Net state domestic product

Goods and service tax

Foreign direct investments

• Pool mean group

Dynamic fixed effect

Auto-regressive distributed lag

The organization for economic co-operation and development

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Neog, Y., Gaur, A.K. Tax structure and economic growth: a study of selected Indian states. Economic Structures 9 , 38 (2020). https://doi.org/10.1186/s40008-020-00215-3

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• Tax structure

Evaluating State and Local Business Tax Incentives

This essay describes and evaluates state and local business tax incentives in the United States. In 2014, states spent between $5 and $216 per capita on incentives for firms in the form of firm-specific subsidies and general tax credits, which mostly target investment, job creation, and research and development. Collectively, these incentives amounted to nearly 40% of state corporate tax revenues for the typical state, but some states' incentive spending exceeded their corporate tax revenues. States with higher per capita incentives tend to have higher state corporate tax rates. Recipients of firm-specific incentives are usually large establishments in manufacturing, technology, and high-skilled service industries, and the average discretionary subsidy is $178M for 1,500 promised jobs. Firms tend to accept subsidy deals from places that are richer, larger, and more urban than the average county, and poor places provide larger incentives and spend more per job. Comparing “winning” and runner-up locations for each deal in a bigger and more recent sample than in prior work, we find that average employment within the 3-digit industry of the deal increases by roughly 1,500 jobs. While we find some evidence of direct employment gains from attracting a firm, we do not find strong evidence that firm-specific tax incentives increase broader economic growth at the state and local level. Although these incentives are often intended to attract and retain high-spillover firms, the evidence on spillovers and productivity effects of incentives appears mixed. As subsidy-giving has become more prevalent, subsidies are no longer as closely tied to firm investment. If subsidy deals do not lead to high spillovers, justifying these incentives requires substantial equity gains, which are also unclear empirically.

We are especially grateful for helpful comments on an early draft from Tim Bartik, Pat Kline, Ilyana Kuziemko, Juan Carlos Suárez Serrato, and Dan Wilson as well as the editorial team—Gordon Hanson, Enrico Moretti, Tim Taylor, and Heidi Williams. We also thank Daron Acemoglu, Leah Boustan, Nick Buchholz, Janet Currie, Hank Farber, Pablo Fajgelbaum, Thomas Fujiwara, Henrik Kleven, Carlianne Patrick, Jim Poterba, Steve Redding, Stefanie Stantcheva, Matt Turner, John Van Reenen, and Eric Zwick for helpful comments and discussions. Stephanie Kestelman and Dustin Swonder provided excellent research assistance. We thank Carlianne Patrick for providing us data on million-dollar plants. This work is supported by National Science Foundation under Grant Number 1752431. We declare that we have no relevant or material financial interests that relate to the research described in this paper. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.

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