The Revolving Door and Regulatory Enforcement: Firm-level Evidence on Tax Rates and IRS Audits

TY - UNPB

T1 - The Revolving Door and Regulatory Enforcement

T2 - Firm-level Evidence on Tax Rates and IRS Audits

AU - Egerod, Benjamin C.K.

PY - 2019

Y1 - 2019

N2 - I argue that hiring former legislators leads to regulatory forbearance, and firms use thisto pursue economic rents. I test the argument with data on firm-level taxes and theIRS’s enforcement activities. I compile a database of publicly listed firms, which havehired Members of Congress (MCs) in the period 2004-2015. I show that hiring a formerMC decreases the average company’s tax rate. The effect is strongest, when firms hirethe best connected former MCs, who served in committees responsible for oversightof the IRS. To investigate whether the effect is driven by selective enforcement, Icollect data on IRS audits and find that hiring a former MC is associated with a lowerprobability of being audited. Additional tests do not suggest that the findings aredriven by general rule changes or lobbying activities. This indicates that rules areenforced differently against politically connected firms.

AB - I argue that hiring former legislators leads to regulatory forbearance, and firms use thisto pursue economic rents. I test the argument with data on firm-level taxes and theIRS’s enforcement activities. I compile a database of publicly listed firms, which havehired Members of Congress (MCs) in the period 2004-2015. I show that hiring a formerMC decreases the average company’s tax rate. The effect is strongest, when firms hirethe best connected former MCs, who served in committees responsible for oversightof the IRS. To investigate whether the effect is driven by selective enforcement, Icollect data on IRS audits and find that hiring a former MC is associated with a lowerprobability of being audited. Additional tests do not suggest that the findings aredriven by general rule changes or lobbying activities. This indicates that rules areenforced differently against politically connected firms.

M3 - Working paper

BT - The Revolving Door and Regulatory Enforcement

ER -