Competition and Corporate Tax Avoidance: Evidence from Chinese Industrial Firms

32 Pages Posted: 27 Apr 2009

See all articles by Hongbin Cai

Hongbin Cai

Peking University - Guanghua School of Management

Qiao Liu

The University of Hong Kong - School of Economics and Finance; Peking University - Guanghua School of Management

Date Written: 0000

Abstract

This article investigates whether market competition enhances the incentives of Chinese industrial firms to avoid corporate income tax. We estimate the effects of competition on the relationship between firms reported accounting profits and their imputed profits based on the national income account. To cope with measurement errors and potential endogeneity, we use instrumental variables, exogenous policy shocks and other robustness analysis. We find robust and consistent evidence that firms in more competitive environments engage in more tax avoidance activities. Moreover, all else equal, firms in relatively disadvantageous positions demonstrate stronger incentives to avoid corporate income tax.

Suggested Citation

Cai, Hongbin and Liu, Qiao, Competition and Corporate Tax Avoidance: Evidence from Chinese Industrial Firms (0000). The Economic Journal, Vol. 119, Issue 537, pp. 764-795, April 2009, Available at SSRN: https://ssrn.com/abstract=1375994 or http://dx.doi.org/10.1111/j.1468-0297.2009.02217.x

Hongbin Cai (Contact Author)

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

Qiao Liu

The University of Hong Kong - School of Economics and Finance ( email )

School of Economics and Finance
Pokfulam
Hong Kong
Hong Kong
852-2859-1059 (Phone)
852-2548-1152 (Fax)

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

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