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Tax Enforcement, Tax Avoidance, and Enterprise Total Factor Productivity: Evidence from the Corporate Income Tax Reform

【Authors】
LIU Zhong, LI Yin
【WorkUnit】
Southwestern University of Finance and Economics, 611130.
【Abstract】

Increasing total factor productivity (TFP) is the key to accelerate the transformation of China's economic development mode, and the government plays an inseparable role in the transformation. The governments' tax enforcement will directly affect enterprises' production and operation, and thus their development and transformation. Based on the corporate income tax reform in 2002, this study estimates the impact of tax enforcement on enterprise TFP by using the difference in difference (DID) method. The results are as below: (1) loose tax enforcement will lower the enterprise TFP; (2) by exploring the working mechanism, we find loose tax enforcement increases enterprise tax avoidance, thereby reducing enterprise input into R&D, and negatively affecting enterprise TFP in the end; (3) heterogeneity analyses find that enterprises in nonhigh-tech sectors,non-ethnic autonomous areas, and with high-level tax avoidance suffer more from loose tax enforcement. The conclusions have important implications for the future tax reform.


JEL:D24, H25

【KeyWords】
Total Factor Productivity, Tax Enforcement, Tax Avoidance, Income Tax Reform