Part of academic life involves reading other people's papers. This one caught my attention:
Consumer reactions to tax avoidance: Evidence from the United States and German by Inga Hardeck, James William Harden and David Upton, published June 2018
The abstract says (and note: I have edited, slightly to aid accessibility):
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 corporate reputation in two laboratory experiments in the United States and Germany. 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 reputation 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.
I think that conclusion (to which I added the emphasis) is especially telling, most particularly when Iama engaged with the Fair Tax Mark.
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So it looks as if the market will punish the business in this case. That undermines the case for legal reform in my view. Has anyone read the whole paper?
That is an interesting question
I do not agree with the suggestion you make
The market change shows people want change
And expect it of all the rest
It is then the indication of a requirement that society reinforce its morés through the application of law
It’s clear that people want change, and they are already achieving this through voluntary boycotts in a sense, and buying more from companies with better CSR scores.
It doesn’t logically follow that the law should change in my view.
Take religion – it’s on a downwards slide in most of the developed world. It doesn’t logically follow that we should take steps to hasten this or make some or all aspects of it illegal.
If law does not change because society has indicated a changing ethic why else should it?
“So it looks as if the market will punish the business in this case.”
This is the conventional “the market is the perfect regulator” thesis. Unfortunately the proposition is false. If it was true there would be no need for regulation.
The inesacapable fact is, the world is full to overflowing with frauds, scammers, chancers, charlatans and crooks; many of whom succeed (if they never succeeded there would be no market for them either): to say nothing of those who manipulate what is legal to the very edge of the boundary of the law: with telling, lawful effect.
Meanwhile law and regulation, itself self-regulated and framed by political consent, is required to act with the speed of the age of the quill pen, when we live in the age of the internet, and therefore law and regulation lags far behind those who ignore law and regulation, or walk the boundary with facile dexterity, for personal gain; and the law and regulation never, ever catches up. Usually change is brought about, abruptly, by technological advance; and then the whole hypocritical circus begins again, with new players.
Agreed
The findings in the US and Germany are interesting, however they are interpreted. On a more mundane note I avoid buying Nescafe products due to their promotion of bottle feeding of babies in Africa with Nescafe products rather than more healthy natural breast feeding. Also avoid Boots as they claim to be based in Switzerland to avoid paying full UK tax. If thousands of other people in the UK are shopping on a similar basis it would be interesting to find out.
Like Bill Hughes, I shop with discretion, avoiding the well-known companies who generally offend on more than just tax manipulation. We know that Amazon, apart from avoiding tax, has actively destroyed book stores. We can avoid the egregious companies – buy books from shops, or a company like Hive, which supports local bookstores – use another search engine than Google, such as Ecosia, which funds tree planting projects (and publishes monthly accounts). We can buy our coffee from a company that values and looks after it’s growers. There are many consumers seeking to buy on an ethical basis and the benefits of what have become almost acts of rebellion, apart from a wee sense of gratification and a decent cup of coffee; are a growing network of enterprises which try to trade fairly and openly.
But the effect of these gestures probably goes unnoticed by big tax avoiders. Fair trade or fair tax companies may benefit but they will always be out-performed by the behemoths for whom the ‘punishment’ of a small loss of trade will not incentivise them to change. So yes, John Fleming, legal reform is needed.
I agree
I agree. Recently I stopped at a supermarket to get a coffee but walked out again without purchasing anything when I realised that the cafe was a Starbucks.
But I would be in a minority I suspect. Dramatic change will not often be brought about by consumer action of this kind. Similarly, some progress was made on recycling but a big increase in it only occurred when backed up by legislative change (landfill tax etc.)
Those who take ethical action do so to indicate that change is required
Wise legislators follow
Tobacco products come with a government health warning.
If the ‘market’ solution to tax cheating by corporations was going to work, every ad and every product would have to come with a government mandated financial health warning. “Buying this product will damage your society”.
We might have to outlaw all branded packaging aswell……… And ensure that all products are kept out of the view of susceptible gullible customers. ….and of course not be advertised……
I don’t think this is going to work…… as you were, Richard. I think better tax regulation is the track you should continue to pursue 🙂