Fiscal centralization, government control and corporate tax burden: Evidence from China

Jun Liu and Feng Liu

China Journal of Accounting Studies, 2013, vol. 1, issue 3-4, 168-189

Abstract: This paper examines the relationship between government control and the tax burden of firms in China. We develop a new corporate tax burden measurement taking turnover taxes into account, because in China turnover taxes actually constitute the main component of tax burden. We find that the tax burden of state-owned enterprises (SOEs) is lower than non-SOEs, indicating that non-SOEs are facing tax discrimination. Among SOEs, the tax burden of local SOEs is higher than that of central SOEs, and the lower the local governments’ level, the higher the tax burden of SOEs under their control. We interpret these findings as the result of local governments’ tax competition and tax grabbing behaviors under China’s current highly centralized fiscal system. In addition, we find that our results are mainly caused by firms’ differences in tax refunds and the Value-Added Tax (VAT) burden.

Date: 2013
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DOI: 10.1080/21697221.2013.870367

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