Abstract

The study empirically examines the relationship between macroeconomic conditions and corporate tax compliance in the Greek setting where extreme aggregate fluctuations have taken place. Using a sample of 246,867 firm-year observations from 2004 to 2014, the study found strong evidence that there is negative association between economic conditions, as measured by the rate of gross domestic product, and corporate tax avoidance magnitude thus confirming recent prior evidence. We however, found that the association between the state of economic conditions and corporate tax evasion magnitude is positive. In other words, based on quantitative results combining firm-level and macroeconomic data, we argue that, all other things being equal, during recession phases of the economy firms are basically intended to avoid taxes whereas during expansion phases firms are basically focused and apply in a greater extent tax evasion practices. To the best of this study knowledge this is the first study providing empirical evidence on how macroeconomic cycles affect all aspects of corporate tax compliance behavior.

Key words: Tax avoidance, tax evasion, economic cycles.