Climate Policy Uncertainty and Corporate Tax Avoidance

This study examines the relation between climate policy uncertainty (CPU) and corporate tax avoidance. Using a novel measure of CPU, we document that CPU is negatively related to effective taxes rates for both contemporary and future years. During higher levels of CPU, firms undertake aggressive forms of tax avoidance such as long-term tax planning or tax sheltering. Further analysis suggests that the cash savings from lower tax payments are used to pay dividends and not re-invested. We tackle the endogenous concern with an instrumental variable approach and the firm fixed effect model