Fiscal centralization and corporate leverage in emerging markets: Evidence from the merger of tax bureaus in China

Jin Lv (), Xinyu Ren (), Wendy (Hong) Wang () and Rufen Zheng ()
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Jin Lv: Institute of Law-based Government Research, Jiangxi University of Finance and Economics
Xinyu Ren: The International School, Jiangxi University of Finance and Economics
Wendy (Hong) Wang: School of Accountancy, Jiangxi University of Finance and Economics
Rufen Zheng: School of Finance, Jiangxi University of Finance and Economics

Economics Bulletin, 2025, vol. 45, issue 4, 1762 - 1776

Abstract: This study investigates how fiscal centralization influences corporate leverage in China by exploiting the 2016 consolidation of the National Tax Bureau (NTB) and Local Tax Bureaus (LTBs). Using a difference-in-differences design, we find that affected firms—local enterprises newly subject to NTB oversight—cut leverage by 0.107 standard deviations relative to unaffected peers. The reduction is larger for firms that maintained close ties with local governments before the reform, indicating that centralization improves corporate governance and mitigates center–local agency frictions. The results offer policy guidance for China's ongoing deleveraging initiative.

Keywords: Fiscal centralization; Tax enforcement; Corporate governance; Corporate structure; Emerging markets (search for similar items in EconPapers)
JEL-codes: G3 H7 (search for similar items in EconPapers)
Date: 2025-12-30
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