Fostering Social Capital: The Long-term Effects of Protestant Activities on Corporate Tax Avoidance in Modern China

Abstract

Using disaster frequency as an instrumental variable for the Protestantism spread in China, we find that the intensity of Protestant activities in 1920 significantly reduced the extent of corporate tax avoidance among Chinese industrial firms during 1999–2007. Further analyses of a survey-based dataset and a proprietary peer-to-peer lending dataset show that Protestantism fostered social capital that persists in the long run. Specifically, people from cities with more historical Protestant activities exhibited a higher level of trust and trustworthiness. Our analyses suggest that Protestantism can impact peripheral non-Christian societies through its long-lasting effect on social capital.

Keywords: Religion; Protestant activities; Tax avoidance; Social capital; Ideology

JEL Classification: D22; H26; N35; G30; Z12