Does Ownership Affect the Impact of Taxes on Firm Behavior? Evidence from China

46 Pages Posted: 7 May 2015

See all articles by Clemens Fuest

Clemens Fuest

ifo Institute – Leibniz Institute for Economic Research at the University of Munich; Ludwig-Maximilians-University, Munich; Center for Economic Studies (CES)

Li Liu

University of Oxford - Oxford University Centre for Business Taxation; University of Oxford - Said Business School

Multiple version iconThere are 2 versions of this paper

Date Written: April 29, 2015

Abstract

Does ownership affect the way firms react to corporate taxation? This paper exploits key features of recent corporate tax reforms in China to shed light on the differential impact of taxation on firms under different ownership regimes including private, collectively owned and state owned companies. Employing a difference-in-difference estimation approach, we find that the increase in the deductibility of wage costs in 2006 has led to a sizable increase of wages per worker in private firms and an even larger increase in collective-owned enterprises. In contrast, there is no significant wage response in state owned enterprises. The decrease in the statutory tax rate for domestic firms since 2008 has induced collectively owned enterprises and private firms to reduce debt while there is no significant response SOEs. Our results also suggest that the 2008 reform has reduced tax induced investment round tripping through Hong Kong, Macao and Taiwan.

Keywords: corporate taxation, tax reform, state owned enterprises

JEL Classification: H200

Suggested Citation

Fuest, Clemens and Liu, Li, Does Ownership Affect the Impact of Taxes on Firm Behavior? Evidence from China (April 29, 2015). CESifo Working Paper Series No. 5316. Available at SSRN: https://ssrn.com/abstract=2603177

Clemens Fuest (Contact Author)

ifo Institute – Leibniz Institute for Economic Research at the University of Munich

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Ludwig-Maximilians-University, Munich ( email )

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Germany

Center for Economic Studies (CES) ( email )

Schackstr. 4
Munich, DE 80539
Germany
++89 2180-2748 (Phone)
++89 2180-17845 (Fax)

Li Liu

University of Oxford - Oxford University Centre for Business Taxation ( email )

Saïd Business School
Park End Street
Oxford, OX1 1HP
United Kingdom

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

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