Asymmetric corporate tax compliance: Evidence from a tax reform in China

Hua Cheng, Xiaowei Chen and Shusen Qi

China Economic Review, 2023, vol. 79, issue C

Abstract: Using China's 2008 corporate tax reform as a quasi-natural experiment, we construct a difference-in-differences setting to study firms' asymmetric tax compliance. Compared to firms whose taxes were unaffected by the reform, firms whose tax rate increased reported significantly lower profit margins to avoid paying more taxes. However, firms facing a tax cut did not behave differently from the unaffected firms. The asymmetric behavior is valid for private firms, but not for state-owned firms that have softer budget constraints. Such tax avoidance is done through the manipulation of the costs of goods sold and other expenses, rather than managing net receivables.

Keywords: Tax reform; Tax avoidance; Asymmetric behavior (search for similar items in EconPapers)
JEL-codes: G32 G38 H26 H32 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:79:y:2023:i:c:s1043951x23000524

DOI: 10.1016/j.chieco.2023.101967

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