Political ties and corporate tax burden in Spain

Abstract

This work examines the relationship between political ties and tax burden in a sample of non-financial Spanish-listed firms during the period 2003–2013. Moreover, we analyse whether such incidence is dependent upon family control. In a context where political ties exist for business strategy reasons rather than for public policy ones, our results reveal that politically connected boards reduce tax burden. Thus, for politically connected firms, the benefits of tax avoidance strategies outweigh their associated costs and risks. Furthermore, our results also show that politically connected family firms increase tax burden. These results are consistent with family firms’ distinctive features, increasing the costs and risks derived from strategies aimed at decreasing the tax burden in the presence of political ties. Alternatively, this latter result might also be explained by a greater need to legitimise corporate behaviour using tax policy for politically connected family firms.