TY  - JOUR
AU  - Desai,Mihir A.
AU  - Dyck,Alexander
AU  - Zingales,Luigi
TI  - Theft and Taxes
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10978
PY  - 2004
Y2  - December 2004
UR  - http://www.nber.org/papers/w10978
L1  - http://www.nber.org/papers/w10978.pdf
N1  - Author contact info:
Mihir A. Desai
Graduate School of Business Administration
Harvard University
Soldiers Field
Boston, MA 02163
Tel: 617/495-6693
Fax: 617/496-6592
E-Mail: mdesai@hbs.edu

Alexander Dyck
Joseph L. Rotman School of Management
University of Toronto
105 St. George Street
Toronto, Ontario
Canada M5S 3E6
Tel: 416/946-0819
Fax: 416/978-5433
E-Mail: adyck@rotman.utoronto.ca

Luigi Zingales
Booth School of Business
The University of Chicago
5807 S. Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-3196
Fax: 773/834-2081
E-Mail: luigi.zingales@ChicagoBooth.edu
AB  - This paper analyzes the interaction between corporate taxes and corporate governance. We show that the characteristics of a taxation system affect the extraction of private benefits by company insiders. A higher tax rate increases the amount of income insiders divert and thus worsens governance outcomes. In contrast, stronger tax enforcement reduces diversion and, in so doing, can raise the stock market value of a company in spite of the increase in the tax burden. We also show that the corporate governance system affects the level of tax revenues and the sensitivity of tax revenues to tax changes. When the corporate governance system is ineffective (i.e., when it is easy to divert income), an increase in the tax rate can reduce tax revenues. We test this prediction in a panel of countries. Consistent with the model, we find that corporate tax rate increases have smaller (in fact, negative) effects on revenues when corporate governance is weaker. Finally, this approach provides a novel justification for the existence of a separate corporate tax based on profits.
ER  -