Collusion, political connection, and tax avoidance in China

Pi‐Han Tsai, Yongzheng Liu and Xin Liu

Kyklos, 2021, vol. 74, issue 3, 417-441

Abstract: Our paper is the first to examine the impact of government‐firm collusion on firm tax avoidance in China by applying an instrumental variable approach. We take political turnover of local leaders as an external shock to the existing collusion and investigate firms' tax avoidance activities during local leadership transition. By using data on political turnover of prefectural leaders and listed firms from 2007 to 2014, we find that political turnover leads to the instability of existing collusion, and consequently a decrease in firm tax avoidance. This provides evidence of the pre‐existing collusion between government and firms. We then rule out the possibility that such change is driven by the effect of political uncertainty or tax competition by considering the heterogeneous effect of firms and cities. Finally, we show that firms' political connections, captured by political ties and ownership of firms, stabilize the existing collusion and help firms maintain their advantage while facing external political shocks.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://doi.org/10.1111/kykl.12265

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:kyklos:v:74:y:2021:i:3:p:417-441

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0023-5962

Access Statistics for this article

Kyklos is currently edited by Rene L. Frey

More articles in Kyklos from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().