Does it cost to be politically connected? An examination of the grabbing hand hypothesis using corporate taxes

Taufiq  Arifin; Rezaul Kabir; Iftekhar Hasan

Does it cost to be politically connected? An examination of the grabbing hand hypothesis using corporate taxes

Taufiq Arifin, Rezaul Kabir, Iftekhar Hasan

Finance & Accounting

Research output: Contribution to conference › Paper › peer-review

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Abstract

We study a channel through which politicians use corporate taxes to extract firm’s resources. We find that politically-connected firms pay higher taxes than their non-connected counterparts. Using election as an exogenous shock, we also observe that politically-connected firms pay higher taxes during election years to support the incumbent political regime. The results of the study indicate that favorable economic indicators, e.g. tax revenue, are vitally important to politicians and provide rent seeking incentive to achieve their political objective, e.g. gaining votes.

Original language	English
Number of pages	38
Publication status	Published - 29 May 2019
Event	42nd Annual Congress of the European Accounting Association, EAA 2019 - Aliathon Holiday Village Hotel, Paphos, Cyprus Duration: 29 May 2019 → 31 May 2019 Conference number: 42

Conference

Conference	42nd Annual Congress of the European Accounting Association, EAA 2019
Abbreviated title	EAA
Country	Cyprus
City	Paphos
Period	29/05/19 → 31/05/19

Keywords

political connections
corporate taxes
elections

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abstract = "We study a channel through which politicians use corporate taxes to extract firm{\textquoteright}s resources. We find that politically-connected firms pay higher taxes than their non-connected counterparts. Using election as an exogenous shock, we also observe that politically-connected firms pay higher taxes during election years to support the incumbent political regime. The results of the study indicate that favorable economic indicators, e.g. tax revenue, are vitally important to politicians and provide rent seeking incentive to achieve their political objective, e.g. gaining votes.",

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AU - Kabir, Rezaul

AU - Hasan, Iftekhar

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PY - 2019/5/29

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N2 - We study a channel through which politicians use corporate taxes to extract firm’s resources. We find that politically-connected firms pay higher taxes than their non-connected counterparts. Using election as an exogenous shock, we also observe that politically-connected firms pay higher taxes during election years to support the incumbent political regime. The results of the study indicate that favorable economic indicators, e.g. tax revenue, are vitally important to politicians and provide rent seeking incentive to achieve their political objective, e.g. gaining votes.

AB - We study a channel through which politicians use corporate taxes to extract firm’s resources. We find that politically-connected firms pay higher taxes than their non-connected counterparts. Using election as an exogenous shock, we also observe that politically-connected firms pay higher taxes during election years to support the incumbent political regime. The results of the study indicate that favorable economic indicators, e.g. tax revenue, are vitally important to politicians and provide rent seeking incentive to achieve their political objective, e.g. gaining votes.

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KW - corporate taxes

KW - elections

M3 - Paper

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Y2 - 29 May 2019 through 31 May 2019

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