Social Safety Nets and Corporate Tax Avoidance: Evidence From Paid Family Leave Programs

ABSTRACT

Social safety nets are essential to a resilient and adaptive economic system. This study examines their influence on corporate tax avoidance using the staggered implementation of U.S. state‐level paid family leave (PFL) programs, social safety net policies designed to enhance employees' work‐life balance, as a quasi‐natural experiment. We find a statistically and economically significant decline in corporate tax avoidance following PFL adoption. The results hold across various robustness tests. A structural equation model shows that the effect is mediated by decreases in employee turnover and improvements in employee productivity. The effect is stronger among firms facing greater financing frictions and among labor‐intensive firms. Overall, this study identifies a reduction in corporate tax avoidance as an unintended consequence of social safety nets.