The Unintended Consequence of Land Finance: Evidence from Corporate Tax Avoidance
2022 · Published in Management Science 68(11): 8319–8342 · DOI 10.1287/mnsc.2021.4191
PDF of The Unintended Consequence of Land Finance: Evidence from Corporate Tax Avoidance
In one sentence
When Chinese local governments lose land-sale revenue, they enforce taxes more strictly and local firms avoid less tax.
Summary
Using a large sample of unlisted industrial firms in China, the paper shows that a decrease in local governments’ land transfer revenues leads to lower tax avoidance by firms in their jurisdiction. The effect is stronger in cities that depend more on land finance, where government intervention is greater, and where political leaders have stronger promotion incentives, and it is weaker for politically connected firms. The mechanism is intensified tax enforcement following the loss of land revenue. The paper identifies land finance as a previously underexplored determinant of corporate tax avoidance.
Abstract as published
Using a large sample of unlisted industrial firms in China, we find that a decrease in local governments’ land transfer revenues leads to lower tax avoidance by firms within their jurisdiction. Our cross-sectional variation tests suggest that the tax-avoidance-reduction effect is stronger in cities with higher land finance dependence and government intervention, as well as where the political leaders have stronger promotion incentives. However, the effect is moderated for politically connected firms. Further analysis reveals that intensified tax enforcement is the mechanism through which land transfer revenue losses result in decreased tax avoidance. Our study offers novel evidence on a previously underexplored determinant of corporate tax avoidance through the lens of land finance.
Citation
Tao Chen, Youchao Tan, Jinghua Wang, Cheng (Colin) Zeng (2022). The Unintended Consequence of Land Finance: Evidence from Corporate Tax Avoidance. Management Science, 68(11), 8319–8342. https://doi.org/10.1287/mnsc.2021.4191
BibTeX
@article{chen2022unintended,
title = {{The Unintended Consequence of Land Finance: Evidence from Corporate Tax Avoidance}},
author = {Tao Chen and Youchao Tan and Jinghua Wang and Cheng (Colin) Zeng},
journal = {Management Science},
year = {2022},
volume = {68},
number = {11},
pages = {8319--8342},
doi = {10.1287/mnsc.2021.4191}
}