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Journal of Business Ethics

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28.09.2019 | Original Paper

Consumer Reactions to Tax Avoidance: Evidence from the United States and Germany

verfasst von: Inga Hardeck, J. William Harden, David R. Upton

Erschienen in: Journal of Business Ethics | Ausgabe 1/2021

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Abstract

This research investigates the impact of corporate tax strategies (i.e., tax avoidance and non-avoidance) on consumers’ corporate social responsibility (CSR) perceptions, willingness to pay (WTP), and attitude toward the firm in two laboratory experiments (n = 409) in the United States and Germany. Using the Becker–DeGroot–Marschak incentive-compatible mechanism, which avoids a social desirability bias found in prior research, our results indicate only a minor indirect effect of corporate tax strategies on WTP by way of the mediator CSR perceptions. However, we find a strong effect on attitude toward the firm again mostly mediated by CSR perceptions. In contrast to German consumers, U.S. consumers’ CSR perceptions of tax avoidance are independent of whether a strategy is likely accepted by the tax authorities. Overall, we conclude that CSR perceptions are highly relevant when it comes to consumer responses to tax avoidance.

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https://americansfortaxfairness.org/issues/corporate-tax-dodgers/burger-kings-inversion-a-whopper-of-a-tax-dodge/.

Examples of these varying relationships between the German and U.S. systems noted by Hall and Soskice (2001) include the following. The U.S. liberal market model has largely deregulated labor markets while the German model has a stronger industrial-relations system. Standard setting in the U.S. model is conducted via market competition, while the German model allows for standard setting through cooperative intercompany relationships. German firms have more ability to finance through non-publicly available information than those in U.S. markets.

These results are based on Wave 6 (2010–2014) of the World Value Survey. Official aggregate v.20150418. World Values Survey Association (www.worldvaluessurvey.org). Aggregate File Producer: Asep/JDS, Madrid SPAIN.

Another benefit of using pens is that they are a neutral product. Other fast-moving consumer goods that are relevant to a student sample such as coffee, chocolate, and other food products as well as paper are often associated with social (e.g., fair trade) or environmental (e.g., deforestation) issues that could impact the subjects’ CSR perception outside of the CTS manipulation.

U.S. participants were recruited from introductory financial and managerial accounting courses. German participants were recruited through a volunteer list assembled from introductory courses, participants from other experiments, or from a notice on the university’s homepage seeking volunteers.

U.S. participants received additional course credit for their participation. The German examination regulations did not allow us to offer course credit.

In our later analysis, we control for demographic differences between the countries.

Our use of the term tax avoidance mirrors its use in the popular press to describe activities that corporations use to lower their taxes, but that do not rise to the level of tax evasion. We use the term consistently in all four of our experimental conditions. Both the American and European press use the term as can be seen, for instance, in articles from the BBC and the NY Times (https://www.bbc.com/news/magazine-20560359 and https://www.nytimes.com/interactive/2017/11/10/opinion/gabriel-zucman-paradise-papers-tax-evasion.html). To the extent that the term may carry negative connotations for consumers beyond the underlying tax-reducing activities, it may influence participant responses.

According to Williams (2007), motives for engaging in CSR can be “good”, i.e., altruistic or “selfish”, i.e., carried out in expectations of benefits to the firm. Firms may even hold dual motives simultaneously (Lanis and Richardson 2015). For this study, we are interested in assessing CTS as a form of CSR from the consumers’ perspective. No indication within the experimental materials indicates the firm’s motivation.

Two researchers independently translated the articles. Differences were discussed and agreed on by the two researchers.

Supplies, Inc., was the name for the U.S. firm and Office AG was the name for the German firm. The term AG is the German abbreviation for incorporation. For both sets of subjects, the home country is used as the headquarters in order to avoid introducing potential confounds on a subject’s perceptions related to foreign ownership and/or corporate inversions.

Pilot testing indicated that using an unrelated example deepened the subject’s understanding of the BDM mechanism.

Due to the different laboratory facilities available, we used paper questionnaires in the United States and computerized questionnaires in Germany. All procedural steps were identical. This difference in laboratory facilities is not a drawback to our study. In a meta-analysis, Richman et al. (1999) show that using a computer-assisted questionnaire has no consistent effect on social desirability bias compared to paper questionnaires. The authors suggest that for practical decision-making in multiple testing situations, computer and paper-and-pencil scales should provide similar mean results. In addition, we use an incentive-compatible design, which further reduces the likelihood of a potential social desirability bias.

To correct for exchange rate differentials and unequal variance, we divide WTP by the control condition’s mean WTP for both countries, separately.

Specifically, we excluded all observations that showed a serious misunderstanding of the tax manipulation check questions. A misunderstanding was assumed if participants chose the opposite side of the correct answer on the Likert scales or if the participant chose the second most opposite answer on two check measures. We also deleted observations that simultaneously found the BDM procedure confusing and did not understand why it is in their best interest to state exactly the price they are willing to pay.

Specifically, we eliminated the first observations collected for the respective conditions. As a robustness test, we estimated our model with the sample before that exclusion of 15 observations (n = 424) and find similar results (“Appendix 4”).

Ringle et al. (2015).

The mediating effect holds when we include the exogenous variable attractiveness of the pen (attractiveness → WTP) to control for potential differences in perceived attractiveness.

Five out of 409 participants recorded a WTP of zero, which could be interpreted as a zero interest to buy the product. To ensure a lack of product interest by some participants does not bias our results, we estimate our model with only those observations that have a positive WTP and find similar results.

Note: German participants were informed that the firm had a German headquarters.

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Titel: Consumer Reactions to Tax Avoidance: Evidence from the United States and Germany
verfasst von: Inga Hardeck
J. William Harden
David R. Upton
Publikationsdatum: 28.09.2019
Verlag: Springer Netherlands
Erschienen in: Journal of Business Ethics / Ausgabe 1/2021
Print ISSN: 0167-4544
Elektronische ISSN: 1573-0697
DOI: https://doi.org/10.1007/s10551-019-04292-8

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