Identification of the optimal level of tax practices based on corporate performance

The literature points to factors that both encourage and discourage companies' tax reduction practices, which suggests an optimal level of these tax practices when it comes to economic performance. Thus, this article analyzes this relationship in non-financial companies listed on Brazil’s B3 stock exchange between 2010 and 2020. Using the econometric technique of the Generalized Least Squares Method (GLS) and the Inverted U-squared relationship test in 2,327 observations, the results point to a level of tax reduction practices that, once surpassed, negatively affect corporate performance. Identifying this optimal level contributes to the literature as a basis for new models. From a practical point of view, it alerts managers to the importance of balance in tax reduction practices. This study fills a gap in previous research, which did not emphasize this specific relationship.

KEYWORDS:
Optimal level; economic performance; tax planning; tax avoidance; tax aggressiveness