Empirical evidence on the impact of recent Korean tax reforms

Author:

Lee Namryoung1,Swenson Charles2

Affiliation:

1. Associate Professor of Accounting, School of Business, Korea Aerospace University

2. Professor and Leventhal Research Fellow, Marshall School of Business, University of Southern California

Abstract

In 2011, Korea required all firms to report all value added tax (VAT) invoices electronically to tax authorities. This unique law provided a natural experiment to examine the effects of this disclosure on income taxes and firms’ related responses. The authors find that this additional required disclosure caused firms to become less aggressive on their income taxes, and that they were unable to pass increased tax burdens forward to consumers or backward to suppliers and labor. To maintain, profitability firms cut research and development (R&D) costs, and this cost cutting was larger for tax aggressive firms. Policy implications of this unintended result are discussed.

Publisher

LLC CPC Business Perspectives

Subject

Strategy and Management,Economics and Econometrics,Finance,Business and International Management

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