October 2021
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58 Reads
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21 Citations
International Review of Financial Analysis
Corporate tax avoidance is ubiquitous and has a wide range of economic implications. In this paper, we investigate the effect of corporate tax avoidance on the pay level for employees and the internal pay gap between executives and ordinary employees based on the perspective of salary distribution. The results show that corporate tax avoidance can significantly improve the average pay level of all the staff, but the “inclusive” benefit on employee remuneration brought by tax avoidance is not evenly distributed. More of the increased remunerations are allocated to the top management, further widening executives-ordinary employees pay gap. In addition, evidence from the cross-section analysis reveals that the current life cycle, the level of realized pay, and the short-term investment strategy in Chinese publicly listed companies can significantly affect the relationship between corporate tax avoidance and the internal pay gap. Further analysis suggests that the remuneration-increase effect of corporate tax avoidance can contribute to improving employees' efficiency, but the uneven distribution of tax-saving benefits interferes with such improvement to some extent. Overall, our results demonstrate that reasonable and effective corporate tax avoidance features a certain degree of “inclusiveness” since it helps raise the pay level of the whole staff, which sheds light on the necessity of persistent implementation of tax and fee reduction policies in China.