How Firms’ Tax Incentives Affect Their Corporate Social Responsibility Activities: Evidence From Thailand’s Tax Cut in 2012

This study aims to examine whether and to what extent tax incentives given to firms affect their corporate social responsibility activities. We use a corporate tax cut which took place in Thailand during 2012 and 2013 to explore the corporate tax allowance on corporate social responsibility activities. Such a tax cut constitutes a nature experiment that allows us to study precisely the behaviors of firms before and after the policy shift. Our analysis reveals the importance of tax incentives in explaining the corporate social responsibility activities. That is, we find that corporate income taxes and the CSR activities are negatively correlated. A large-scale tax cut led to potential higher profitability, which makes firms becoming financial more capable of investing in larger CSR projects which they would not, be able to consider under the tougher tax scheme. This result provides important implications to policymakers, not only in Thailand but also elsewhere, on whether benefits of tax-shielding serve as a key motivation to the firms' corporate social responsibility activities.