The impact of tax reduction on enterprises’ financialization-A quasi-natural experiment based on the reduction of VAT rate

Shu Duan, Yuzhong Lu, Yujia Cheng and Qian Liu

PLOS ONE, 2023, vol. 18, issue 12, 1-23

Abstract: This study examines the influence of the reduction in value-added tax (VAT) rates in China during 2018 and 2019 on corporate financialization. By employing a difference-in-differences model and utilizing data from Chinese A-share listed companies between 2017 and 2020, we assess the effects of tax reduction policies. Moreover, it achieves this outcome through three main pathways: alleviating financing constraints, boosting fixed asset investment, and weakening corporate financial arbitrage motives. Further analysis demonstrates that the inhibitory effect of VAT rate reduction on corporate financialization is more pronounced for non-manufacturing companies, businesses reliant on the basic tax rate as their primary revenue source, companies with low intermediate input rates, and those with a strong ability to shift the tax burden. Additionally, debt financing costs play a crucial role in moderating the relationship between tax reduction policies and corporate financialization. The conclusions drawn from this study provide valuable empirical evidence that can contribute to the refinement of VAT reduction policies and the prevention and resolution of financialization at the micro-level.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:plo:pone00:0293385

DOI: 10.1371/journal.pone.0293385

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