Companies run by CEOs who vote Republican tend to pay more in taxes than companies run by CEOs who vote Democratic, according to new research co-authored by a professor in the Terry College of Business.
The difference in paid taxes—statistics show that Republican-led companies pay about 2 percent more in effective tax rates—can be traced to psychological differences in the makeup of the CEOs, said Scott Graffin, a management professor who co-authored the study with three researchers from the University of Arizona business school.
“A person’s political affiliation is a good proxy of a couple of psychological conditions: One is their tolerance for ambiguity, the other is whether they’re risk-seeking or risk-averse,” Graffin said. “People who lean Republican tend to be less tolerant of ambiguity and more risk-averse, while people who lean Democratic tend to be more risk-seeking and more comfortable with ambiguity.”
These personal factors trickle through an organization, affecting how decisions at many levels are made, Graffin said. Because Republican CEOs are more risk-averse, accountants under them tend to promote risk-averse strategies.
“Tax laws try to be clear, but there are always areas where they aren’t,” Graffin said. “So there’s this idea that even if a CEO isn’t a tax expert, they may push their accountants in certain tax-avoidance postures that line up with their tolerance for risk.”
The study examined personal political donations from more than 10,000 high-level managers over -approximately 30 years.
The findings may seem counterintuitive, Graffin said, because Republicans tend to be anti-tax and Democrats tend to be in favor of more corporate taxes. But while Republican-leaning CEOs may be anti-tax, they’re also risk-averse, meaning they’re less likely to try certain tax-evasion strategies.
