Description
Title: Corporate Tax Avoidance and Investment Productivity: Evidence from Tax Amnesty Enforcement in Indonesia
Abstract: This study examines the investment efficiency of Indonesian companies that engage in tax avoidance. We document a positive relationship between tax avoidance and investment efficiency by testing 2064 firmyear observations of Indonesian listed firms from 2010 to 2019. This study also considers Indonesia’s unique situation as one of the few developing nations to implement tax amnesty. Thus, we examine the variables during Indonesia’s prime tax amnesty implementation period. Only firms that did not participate in tax amnesty during the implementation period yield significant results. In spite of this, the results are consistent across multiple alternative measurements and robust to the Propensity Score Matching regression used to control for possible endogeneity. In addition, we find that the investment efficiency of tax avoidance is significant for both underinvesting and overinvesting firms. These results contribute to the literature on tax evasion and corporate investment. Based on the findings, tax authorities should be more stringent in their treatment of tax avoidance, as this practice has a costbenefit tradeoff that allows firms to obtain benefits at the expense of the state’s income if not properly managed.
Keywords: tax avoidance; tax amnesty participation; investment efficiency; tax evasion
Paper Quality: SCOPUS / Web of Science Level Research Paper
Subject: Economics
Writer Experience: 20+ Years
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