The Unintended Consequence of Land Finance: Evidence from Corporate Tax Avoidance

Tao Chen, Youchao Tan (), Jinghua Wang () and Cheng (Colin) Zeng ()
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Youchao Tan: School of Management, Jinan University, Guangzhou 510632, China
Jinghua Wang: School of Accounting, Nanjing Audit University, Nanjing 211815, China; Institute of Intelligent Management Accounting and Internal Control, Nanjing Audit University, Nanjing 211815, China
Cheng (Colin) Zeng: School of Accounting and Finance, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong

Management Science, 2022, vol. 68, issue 11, 8319-8342

Abstract: Using a large sample of unlisted industrial firms in China, we find that a decrease in local governments’ land transfer revenues leads to lower tax avoidance by firms within their jurisdiction. Our cross-sectional variation tests suggest that the tax-avoidance-reduction effect is stronger in cities with higher land finance dependence and government intervention, as well as where the political leaders have stronger promotion incentives. However, the effect is moderated for politically connected firms. Further analysis reveals that intensified tax enforcement is the mechanism through which land transfer revenue losses result in decreased tax avoidance. Our study offers novel evidence on a previously underexplored determinant of corporate tax avoidance through the lens of land finance.

Keywords: land finance; tax avoidance; political incentives; tax enforcement (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (7)

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