The complicit role of local government authorities in corporate bribery: Evidence from a tax collection reform in China

Chunfang Cao, Xiaoyang Li and Changyuan Xia

China Economic Review, 2021, vol. 65, issue C

Abstract: In January 2002, China decided to centralize corporate income tax collection, shifting the collection authority from the local tax bureaus (LTBs) to the state tax bureaus (STBs), for all firms established after December 31, 2001. We exploit this exogenous shock to identify a new cause for corporate bribery, namely, the complicit role of local government authorities. We find that firms whose income taxes are still collected by LTBs after the reform bribe more than similar firms whose taxes are collected by STBs. Such effects are more pronounced for firms located in provinces where government intervention is more prevalent and where judicial system is less independent. Moreover, we find that firms whose taxes are collected by LTBs enjoy lower tax burdens and receive greater tax-related subsidies, especially when they bribe more. Overall, our results highlight the reciprocation between local government authorities and firms in determining corporate bribery.

Keywords: Tax collection; Corporate bribery; Local government complicity (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:65:y:2021:i:c:s1043951x20301759

DOI: 10.1016/j.chieco.2020.101578

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