Do income taxes affect corporate social responsibility? Evidence from European listed companies

This study explores empirically the effects of corporate income taxes on the incentiveto invest in corporate social responsibility (CSR) activities. We estimate the relationbetween CSR ratings and firm-specific corporate effective tax rates for a large sampleof nonfinancial-listed companies from 15 European countries during 2006–2016. Byemploying an instrumental variable approach, we find that average effective tax ratesare negatively correlated with CSR ratings. Our findings are also consistent underadditional tests and robustness checks. We, therefore, can provide suggestive evi-dence that corporate taxation discourages corporate socially responsible behaviour.At the same time, in a tax policy perspective, our analysis suggests how countriescould encourage through the tax system the corporate provision of sustainableinvestments.