Working Paper: NBER ID: w28775
Authors: John M. Barrios; John Gallemore
Abstract: We examine the extent to which the labor market facilitates the diffusion of tax planning knowledge across firms. Using a novel dataset of tax department employee movements between S&P 1500 firms, we find that firms experience an increase in their tax planning after hiring a tax employee from a tax aggressive firm. This finding is robust to various research designs and specifications. Consistent with tax planning knowledge driving this result, we find that the tax planning benefit of hiring an employee from a tax aggressive firm is stronger when the employee has more tax experience and is hired into a senior tax department role, and when the hiring firm likely had less tax planning knowledge prior to the hire. Further tests suggest that tax planning knowledge is highly specific in nature: the increase in tax avoidance is larger when the hiring and former firms are similar (i.e., operating in the same sector or having similar foreign operations), and firms are more likely to hire tax department employees from firms with similar characteristics. Our study documents the first-order role of the labor market in the diffusion of tax planning knowledge across firms, and suggests that tax department human capital is a central determinant of tax planning outcomes.
Keywords: Tax Planning; Knowledge Diffusion; Labor Market; Employee Mobility; Corporate Tax
JEL Codes: H25; H26; J20; J24; J4; J44; J60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Hiring a tax department employee from a tax aggressive firm (H32) | Increase in tax planning outcomes for the hiring firm (H32) |
| Hiring a tax department employee with significant tax experience (H26) | Increase in tax planning outcomes for the hiring firm (H32) |
| Hiring a tax department employee in a senior role (M51) | Increase in tax planning outcomes for the hiring firm (H32) |
| Hiring from similar operational characteristics firms (M51) | More pronounced increase in tax planning outcomes (H26) |
| Employee movements (J62) | Diffusion of tax planning knowledge across firms (H32) |