Labor unions and tax aggressiveness

We examine the impact of unionization on firmsʹ tax aggressiveness. We find a negative association between firmsʹ tax aggressiveness and union power and a decrease in tax aggressiveness after labor union election wins. This relation is consistent with labor unions influencing managersʹ in one, or both, of two ways: (1) constraining managersʹ ability to invest in tax aggressiveness through increased monitoring; or (2) decreasing returns to tax aggressiveness that arise from unionsʹ rent seeking behavior. We also find preliminary evidence that the market expects these reductions around union elections and discounts firms that likely add shareholder value via aggressive tax strategies.