When Philanthropy Meets the Bottom Line: Unraveling Corporate Tax Avoidance and Contribution

ABSTRACT From the perspective of “mandatory redistribution” and “voluntary third distribution,” this study analyzes the relationship between corporate charitable giving and two key fiscal outcomes: tax avoidance and actual tax contributions. The results show that it is a “win‐win” for the government and firms to increase tax avoidance while increasing tax contributions. As tax enforcement intensifies, firms may escalate their aggressive tax planning and curtail fiscal contributions, a behavior that ultimately jeopardizes their long‐term viability. That is excessive government intervention, risky firm, “hypocrisy” accusations. The potential reason may be that the halo effect of corporate charitable donations has greatly increased their market awareness and operating income, thereby creating space for reasonable tax avoidance and expanding the capital pool available for tax payments. However, in an uncertain economic environment, firms tend to adopt legal tax avoidance methods to maintain the flexibility of capital flows, including charitable donations, and to enhance the robustness of their internal cash reserves. To some extent, this approach certainly weakens firms' direct tax contributions. Further analysis strongly supports this claim. The sample test found that in areas with high local financial pressure and low social trust, firms tend to use charitable donations to avoid taxes. This study uncovers complex drivers behind corporate behavior, inspiring policy optimization and social governance improvements across diverse economic systems.