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Exploring the role Delaware plays as a domestic tax haven

Author

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  • Dyreng, Scott D.
  • Lindsey, Bradley P.
  • Thornock, Jacob R.

Abstract

We examine whether Delaware is a domestic tax haven. We find that taxes play an economically important role in determining whether U.S. firms locate subsidiaries in Delaware and that a Delaware-based state tax avoidance strategy lowers state effective tax rates by between 0.7 and 1.1 percentage points, on average. The tax savings represent a 15–24% decrease in the state income tax burden and translate to an increase in net income of 1.04–1.47%. However, we find that the tax benefits of Delaware tax strategies are diminishing over time in response to initiatives by state governments to limit multistate tax avoidance.

Suggested Citation

  • Dyreng, Scott D. & Lindsey, Bradley P. & Thornock, Jacob R., 2013. "Exploring the role Delaware plays as a domestic tax haven," Journal of Financial Economics, Elsevier, vol. 108(3), pages 751-772.
    • Handle: RePEc:eee:jfinec:v:108:y:2013:i:3:p:751-772
    DOI: 10.1016/j.jfineco.2013.01.004
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    References listed on IDEAS

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    More about this item

    Keywords

    Delaware; Tax haven; Corporate governance; Corporate tax avoidance;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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