How does flexible tax enforcement affect TFP? China’s exceptional approach

Jun Zhu and Zhiwei Yang

Journal of Asian Economics, 2024, vol. 94, issue C

Abstract: To explore the relationship between flexible tax enforcement and enterprises’ business decisions, we use a difference-in-differences (DID) model to investigate the impact of flexible tax enforcement on enterprises’ TFP through China’s tax credit grading system. The findings of the study are as follows: Firstly, flexible tax enforcement will enhance the TFP of A-grade taxpayers. Secondly, two mechanisms exist to improve firms’ TFP through flexible tax enforcement. One is to stimulate enterprises to carry out R&D and innovation, and the other is to enhance the long-term awareness of managers. Finally, the promotion effect of flexible tax enforcement on non-state-owned enterprises is greater than on state-owned enterprises, and the effect on total factor productivity is more pronounced in areas of high fiscal pressure.

Keywords: Flexible tax enforcement; Total factor productivity; Tax credit grading system (search for similar items in EconPapers)
JEL-codes: H29 H32 L21 O12 P35 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:94:y:2024:i:c:s1049007824000903

DOI: 10.1016/j.asieco.2024.101795

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