Tax-Related Human Capital: Evidence from Employee Movements

52 Pages Posted: 3 May 2019 Last revised: 14 Jan 2021

See all articles by John Manuel Barrios

John Manuel Barrios

Washington University in St. Louis - Olin Business School

John Gallemore

University of Chicago - Booth School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: November 2020

Abstract

Despite the human capital in corporate tax departments representing the average firm’s most direct and substantial investment in tax compliance and planning, our understanding of it is limited. Using employee movement between the tax departments of publicly-traded U.S. corporations, we shed light on the determinants and consequences of tax-related human capital. We first show that deteriorations in firm tax performance are associated with increases in the likelihood of a tax department hire from another firm, but not other sources (e.g., public accounting). Second, we find that tax departments tend to hire from firms with similar characteristics (such as industry membership), suggesting that the nature of tax-related human capital is highly specific. Finally, we document that firms exhibit meaningful increases in tax avoidance when they hire from firms which themselves were successful at avoiding taxes, consistent with employee movement being a mechanism through which tax planning knowledge spreads across firms.

Keywords: human capital, employee movements, tax departments, tax avoidance

JEL Classification: H25, H26, J23, J24, J44

Suggested Citation

Barrios, John Manuel and Gallemore, John, Tax-Related Human Capital: Evidence from Employee Movements (November 2020). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2019-64, Available at SSRN: https://ssrn.com/abstract=3381231 or http://dx.doi.org/10.2139/ssrn.3381231

John Manuel Barrios

Washington University in St. Louis - Olin Business School ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

John Gallemore (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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