Working Papers

Paying Your Fair Share:
Perceived Fairness and Tax Compliance

With Ricardo Perez-Truglia & Alejandro Zentner

Abstract: We provide unique causal evidence on the significance of fairness considerations for tax compliance: households demonstrate greater willingness to pay taxes when they perceive that other households are also contributing their fair share. We conducted an information-provision field experiment in the context of U.S. property taxes where taxpayers can file a property tax appeal to legally reduce their property taxes. Our information-provision experiment introduces exogenous variation in a homeowner's perception of the average tax rate paid by other households. We measure the effects of the information shock on the homeowner's decision to file a tax appeal, measured via administrative records. When homeowners learn that the average tax rate is higher (lower) than they believed, that increases (decreases) their probability of filing tax appeals. We discuss implications for the design of tax policies and for the study of tax morale.

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Do Shareholders Benefit From Fee-Shifting Bylaws?

With Ashiq Ali

Abstract: In the event of a shareholder lawsuit, fee-shifting bylaws can shift the firm’s legal fees from itself to the suing party if the suing party does not obtain a judgment on the merits that substantially achieves the full remedy sought. These bylaws may help deter non-meritorious lawsuits, but may also undermine shareholders’ use of litigation as a corporate disciplining mechanism. Thus, the net effect of legalizing these bylaws on shareholder wealth is an empirical question. To address this question, we conduct an event study that examines the effects on stock prices of Delaware firms of a Delaware court ruling that legalized such fee-shifting bylaws and of subsequent Delaware legislative events, which resulted in a ban on such bylaws. Our findings suggest that on average Delaware firms’ stocks reacted negatively to the legalization of the bylaws. We further show that stocks of Delaware firms with higher exposure to non-meritorious litigation risk reacted more favorably than the stocks of other Delaware firms to legalizing such fee-shifting bylaws. Our results suggest that on average shareholder wealth decreased when fee-shifting bylaws were legalized. However, there is significant heterogeneity in the effect on shareholders’ wealth depending on firms’ exposure to non-meritorious litigation risk.

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